We recently teamed up with Collin Eaton, a top energy reporter from Reuters. As a background source for them, we are happy to bring all the oil news that matters to our subscribers in a single post.

About Crude News and Collin: I’m the Reuters oil markets correspondent in Houston, Texas. I provide updates from the news wire each morning for people interested in oil markets. It’s my job to talk to traders, brokers and analysts to follow what’s driving crude markets, particularly in the United States. I don’t ask for anything in return except for the occasional answer to a question, and I treat messages and conversations with traders as on background or off the record, meaning it’s not for attribution in a news clip. Please reach out with tips, ideas, interesting tidbits. You can reach me by email, phone, the Eikon terminal or What’s App.

I also write Reuters’ daily cash crude report, which is an assessment of prices for U.S. crude grades. Please let me know if you see trades for WTI-Midland, LLS, HLS, WTI Sour, Mars, Bakken, Thunderhorse, Southern Green Canyon, MEH, P+, Bonito and Poseidon

All the best

Collin Eaton,Energy Reporter

Reuters, Houston

 

Titles and summaries are here. We encourage you to drill down into topics of interest.

In return, Collin likes to survey oil traders on current developments. We will help in this way.

For example: today Collin is interested in the trading community take on 2 developing areas:

1)    What’s happening with U.S. and Canadian physical/cash crude prices?

2)    What’s the physical oil market reaction to Canada’s production cuts? What will it mean for coastal grades like LLS and Mars, and inland grades like Midland? Anyone confirm any trades today for U.S. or Can grades?

VBL

Here are today’s top stories:

UPDATE 9-Oil surges 5 pct on trade truce, expected supply cuts – Reuters News

03-Dec-2018 06:43:49 AM

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  • Both global oil benchmarks up 5 pct after 90-day trade war truce
  • Alberta to cut oil production to ease glut, support prices
  • OPEC expected to agree cuts aimed at reining in oversupply
  • Qatar says will leave OPEC in January
  • Russian November oil output dips from record high

Updates prices in paragraph 2

By Christopher Johnson

LONDON, Dec 3 (Reuters) – Oil prices jumped by more than 5 percent on Monday after the United States and China agreed to a 90-day truce in a trade dispute, and ahead of a meeting this week of the producer club OPEC that is expected to cut supply.

U.S. light crude oil CLc1 rose $2.92 a barrel to a high of $53.85, up 5.7 percent, before easing to around $53.00 by 1240 GMT. Brent crude LCOc1 rose 5.3 percent or $3.14 to a high of $62.60 and was last trading around $61.75.

“From Argentina to Alberta, the oil market news is about supply curtailments,” said Norbert Rucker, head of commodity research at Swiss bank Julius Baer. “A brightening market mood will likely extend today’s price rally in the very near term.”

China and the United States agreed during a weekend meeting in Argentina of the Group of 20 leading economies not to impose additional trade tariffs for at least 90 days while they hold talks to resolve existing disputes. (Full Story) (Full Story)

The trade war between the world’s two biggest economies has weighed heavily on global trade, sparking concerns of an economic slowdown. (Full Story) (Full Story)

Crude oil has not been included in the list of products facing import tariffs, but traders said the positive sentiment of the truce was also driving crude markets. (Full Story)

Oil also received support from an announcement by the Canadian province of Alberta that it would force producers to cut output by 8.7 percent, or 325,000 barrels per day (bpd), to deal with a pipeline bottleneck that has led to crude building up in storage. (Full Story) (Full Story)

The Organization of the Petroleum Exporting Countries meets on Dec. 6 to decide output policy. The group, along with non-OPEC member Russia, is expected to announce cuts aimed at reining in a production surplus that has pulled down crude prices by around a third since October.

“Markets are expecting to see a substantial production cut after Russian President Vladimir Putin said his country’s cooperation on oil supplies with Saudi Arabia would continue,” said Hussein Sayed, chief market strategist at brokerage FXTM.

Within OPEC, Qatar said on Monday it would leave the producer club in January. (Full Story)

Qatar’s oil production is only around 600,000 bpd, but it is the world’s biggest exporter of liquefied natural gas (LNG).

The Gulf state has also been at loggerheads with its much bigger neighbour Saudi Arabia, the de facto OPEC leader. (Full Story)

Outside OPEC, Russian oil output stood at 11.37 million bpd in November, down from a post-Soviet record of 11.41 million bpd it reached in October, Energy Ministry data showed on Sunday. (Full Story)

Meanwhile, oil producers in the United States continue to churn out record amounts of oil, with crude output at an unprecedented level of more than 11.5 million bpd. (Full Story)

With drilling activity still high, most analysts expect U.S. oil production to rise further in 2019. (Full Story)

http://fingfx.thomsonreuters.com/gfx/editorcharts/TOP-OIL-PRODUCERS/0H0014BY82FJ/eikon.png

 

PREVIEW-Saudi Arabia may cut Jan prices for all crude oil grades to Asia – Reuters News

02-Dec-2018 11:37:40 PM

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  • Jan Arab Light OSP may fall to lowest in at least 3 months
  • Weak naphtha, gasoline margins drag down light grades
  • Record fuel oil cracks to support medium, heavy grades

By Florence Tan

SINGAPORE, Dec 3 (Reuters) – Top oil exporter Saudi Arabia is expected to cut prices for all grades of crude it sells to Asia in January amid a weaker Middle East benchmark Dubai and low margins for light products, industry sources said on Monday.

Saudi Aramco will set prices for crude loading in January this week, ahead of a meeting among the Organization of the Petroleum Exporting Countries and Russia to decide on output cuts.

The official selling price (OSP) for Arab Light may fall between 50 cents and $1.20 a barrel to the lowest in at least three months, a Reuters survey of six refiners showed.

The price cut should track a 77-cent drop in Platts Dubai’s price spread between the first and third month in November from October, they said.

“Refining margins are also down at least 10 percent overall and a strong fuel oil crack is useless to most refineries,” one of the survey respondents said.

While several factors point to deep price reductions for Saudi oil in Asia, the OPEC kingpin may not cut as much because outright prices have fallen sharply.

“The OSP should be lowered to compensate for a weaker intermonth structure, but since the flat price has fallen below $60 I wonder if Aramco will cut prices less,” said a second respondent who expected a 50-cent cut in Arab Light’s January OSP.

Most of those polled expect Arab Extra Light’s January OSP to fall by more than $1 a barrel in response to naphtha cracks NAF-SIN-CRK which have dropped to the lowest in more than two years.

Still, fuel oil margins have hit all-time highs, supporting prices for all Middle East grades which yield a large portion of the residue. Hence, Arab Medium and Arab Heavy OSPs will see smaller price cuts, the respondents said, with one forecasting that Arab Heavy will remain unchanged in January.

“The fuel oil crack is quite strong while naphtha and gasoline cracks are really weak so we expect a heavy discount on Arab Extra Light. There might even be a price hike for Arab Medium and Arab Heavy,” said a third respondent.

Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.

Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.

Saudi Aramco officials as a matter of policy do not comment on the kingdom’s monthly OSPs.

 

Below are expected Saudi prices for January (in $/bbl against the Oman/Dubai average):

DEC       Change         est.JAN OSP

Arab Extra Light    +2.25     -1.70/-1.00     +0.55/+1.25

Arab Light          +1.60     -1.20/-0.50     +0.40/+1.10

Arab Medium         +0.70     -0.70/-0.25     +0.00/+0.45

Arab Heavy          –0.25     -0.40/+0.00     -0.65/-0.25

Source: Reuters, trade

 

UPDATE 5-Qatar to leave OPEC and focus on gas as it takes swipe at Riyadh – Reuters News

03-Dec-2018 07:48:27 AM

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  • Doha locked in political row with OPEC’s Saudi Arabia
  • Qatari minister says decision not political
  • OPEC “managed by a country”, Qatar’s Al-Kaabi says
  • OPEC expected to agree oil supply cut this week
  • Qatar charts more independent policies since regional rift

Adding quote from former Qatari prime minister

By Eric Knecht

DOHA, Dec 3 (Reuters) – Qatar said on Monday it was quitting OPEC from January to focus on its gas ambitions, taking a swipe at the group’s de facto leader Saudi Arabia and marring efforts to show unity before this week’s meeting of exporters to tackle an oil price slide.

Doha, one of OPEC’s smallest oil producers but the world’s biggest liquefied natural gas (LNG) exporter, is embroiled in a protracted diplomatic row with Saudi Arabia and some other Arab states.

Qatar said its surprise decision was not driven by politics but in an apparent swipe at Riyadh, Minister of State for Energy Affairs Saad al-Kaabi said: “We are not saying we are going to get out of the oil business but it is controlled by an organisation managed by a country.” He did not name the nation.

Al-Kaabi told a news conference that Doha’s decision “was communicated to OPEC” but said Qatar would attend the group’s meeting on Thursday and Friday in Vienna, and would abide by its commitments.

He said Doha would focus on its gas potential because it was not practical “to put efforts and resources and time in an organisation that we are a very small player in and I don’t have a say in what happens.”

Delegates at OPEC, which has 15 members including Qatar, sought to play down the impact. But losing a long-standing member undermines a bid to show a united front before a meeting that is expected to back a supply cut to shore up crude prices that have lost almost 30 percent since an October peak.

“They are not a big producer, but have played a big part in (OPEC’s) history,” one OPEC source said.

It highlights the growing dominance over policy making in the oil market of Saudi Arabia, Russia and the United States, the world’s top three oil producers which together account for more than a third of global output.

Riyadh and Moscow have been increasingly deciding output policies together, under pressure from U.S. President Donald Trump on OPEC to bring down prices. Benchmark Brent is trading at around $62 a barrel, down from more than $86 in October. LCOc1

“It could signal a historic turning point of the organisation towards Russia, Saudi Arabia and the United States,” said Algeria’s former energy minister and OPEC chairman, Chakib Khelil, commenting on Qatar’s move.

https://fingfx.thomsonreuters.com/gfx/ce/7/2198/2197/Pasted%20Image.jpg

 

“UNILATERAL DECISIONS”

He said Doha’s exit would have a “psychological impact” because of the row with Riyadh and could prove “an example to be followed by other members in the wake of unilateral decisions of Saudi Arabia in the recent past.”

Qatar, which Al-Kaabi said had been a member of OPEC for 57 years, has oil output of just 600,000 barrels per day (bpd), compared with Saudi Arabia’s 11 million bpd.

But Doha is an influential player in the global LNG market with annual production of 77 million tonnes per year, based on its huge reserves of the fuel in the Gulf.

OPEC members Saudi Arabia and the United Arab Emirates, and fellow Arab states Bahrain and Egypt, have imposed a political and economic boycott on Qatar since June 2017, accusing it of supporting terrorism. Doha denies the charges and says the boycott aims to impinge on its sovereignty.

Al-Kaabi, who is heading Qatar’s OPEC delegation, said the decision was part of a long-term strategy and the country’s plans to develop its gas industry and increase LNG output to 110 million tonnes by 2024. (Full Story)

“A lot of people will politicise it,” Al-Kaabi said. “I assure you this purely was a decision on what’s right for Qatar long term. It’s a strategy decision.”

Qatar’s influential former prime minister, Sheikh Hamad bin Jassim al-Thani, said on Twitter that OPEC “is only used for purposes that hurt our national interests.”

The exit is the latest example of Qatar charting a course away from its Gulf neighbours since the rift began last year. It comes before an annual summit of Gulf Arab states expected to grapple with the roughly 18-month standoff.

Once close partners with Saudi Arabia and the UAE on trade and security, Qatar has struck scores of new trade deals with countries further afield while investing heavily to scale up local food production and ramp up military power. (Full Story)

“There is a sentiment in Qatar that Saudi Arabia’s dominance in the region and the region’s many institutions has been counterproductive to Qatar,” said Andreas Krieg, a political risk analyst at King’s College London. “It is about Qatar breaking free as an independent market and state from external interference.”

Oil surged about 5 percent on Monday after the United States and China agreed to a 90-day truce in their trade war, but prices remain well off October’s peak. (Full Story)

Asked if Qatar’s withdrawal would complicate OPEC’s decision on output this week, a non-Gulf OPEC source said: “Not really, even if it’s a regrettable and sad decision from one of our member countries.”

Amrita Sen, chief oil analyst at consultancy Energy Aspects, said the move “doesn’t affect OPEC’s ability to influence as Qatar was a very small player.”

Al-Kaabi said state oil company Qatar Petroleum planned to raise its production capability from 4.8 million barrels of oil equivalent per day to 6.5 million barrels in the next decade.

Doha also plans to build the largest ethane cracker in the Middle East.

Qatar would still look to expand its oil investments abroad and would “make a big splash in the oil and gas business”, he Al-Kaabi added.

UPDATE 1-China imports first U.S. crude in two months, traders still wary – Reuters News

03-Dec-2018 06:00:12 AM

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  • Teapot Yuhuang receives first U.S. crude cargo in Nov
  • 1 mln bbls Southern Green Canyon crude offloaded
  • Traders still wait for direction from Beijing

Adds details

By Florence Tan and Chen Aizhu

SINGAPORE/BEIJING, Dec 3 (Reuters) – China imported its first U.S. crude oil cargo in around two months last week, according to industry sources and Refinitiv Eikon data – a deal made by an independent “teapot” refiner as larger players held off amid trade tensions.

Chinese buyers have largely avoided U.S. oil during the two countries’ trade war, fearing the imposition of tariffs. (Full Story)

The world’s two largest economies agreed over the weekend to stop imposing new tariffs on each other’s goods for 90 days, though Chinese oil traders said they were still wary and looking for direction from Beijing. (Full Story)

Independent refiner Shandong Yuhuang Petrochemicals received its first ever U.S. crude oil cargo last week, a company executive said.

“We decided to buy this U.S. cargo as it has good value for money,” said the executive who declined to be named due to company policy.

Very Large Crude Carrier New Courage discharged about 1 million barrels of Southern Green Canyon crude at Lanshan in Shandong province on Nov. 28, Refinitiv Eikon data showed.

Unipec had chartered the super tanker to ship American oil to China. New Courage first called at Cezi Island in Zhoushan, Zhejiang province, where it offloaded on Nov. 23 about 260,000 barrels of Latin American crude, according to the data.

Sinopec 600028.SS, the parent company of Unipec, declined comment.

Chinese customs data last recorded imports from the United States in September and a search in its database did not show any imports in October. (Full Story)

China’s oil imports from the United States slumped to the lowest in more than two years after Beijing threatened to imposetariffs in August – even though it later took U.S. crude off its sanctions list. (Full Story)

Unipec, China’s largest buyer of U.S. oil, resumed loadings in October after a two-month halt but it sold most of the oil to Europe or to other Asian buyers. (Full Story) (Full Story)

The White House said in a statement on Sunday that Beijing had now agreed to buy an unspecified but “very substantial” amount of agricultural, energy, industrial and other products.

Still, Chinese buyers remained wary, waiting for further instructions from Beijing.

“We’re still gauging the policies… It’s only a 90-day window,” a Chinese oil buyer said, adding that the oil could arrive between January and March.

He added that U.S. Mars crude which has been offered at about $2 a barrel above Dubai quotes for delivery to north Asia remained uncompetitive with Middle East oil.

But West Texas Intermediate (WTI) Midland which was recently sold at about $2 a barrel above dated Brent could work, he said.

Unipec and Royal Dutch Shell RDSa.L are seeking to book supertankers to load crude in the U.S. Gulf Coast in late December for China, traders said, but added that these ships have options to be diverted elsewhere in Asia.

Oil on front line of battle against “the enemy”-Iranian minister – Reuters News

03-Dec-2018 08:22:24 AM

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GENEVA, Dec 3 (Reuters) – Iran’s oil industry is on the frontline of the fight against “the enemy”, Oil Minister Bijan Zanganeh was quoted as saying on Monday, adding that Tehran would do its utmost to counter U.S.-led efforts to put economic pressure on the country.

Zanganeh, in comments reported by SHANA, the oil ministry’s news agency, did not specify who he saw as the enemy but Iran is locked in confrontation with the United States, which has applied sanctions and has said that its goal is to reduce Iran’s oil exports to zero.

“The oil, gas and petrochemical sectors are the frontline in the battle against the enemy,” Zanganeh said.

President Donald Trump pulled the United States out of a multilateral nuclear deal with Iran in May and reimposed sanctions on Iran’s oil industry last month.

The Iranian government’s most important role is to reduce the economic difficulties of ordinary Iranians brought about by American pressure, Zanganeh said.

“The goal of America and its regional allies is, through exerting pressure and economic shortages, to say we have hit a dead end on the threshold of the 40th anniversary of the Islamic revolution,” Zanganeh said, according to SHANA.

He added: “We have a legal and religious duty to reduce the income pressure on the people. This is the most important thing that we must do and the government is putting forth all its efforts on this issue.”

 

 

UPDATE 2-Alberta to force oil output cuts to deal with price woes – Reuters News

02-Dec-2018 07:50:41 PM

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Adds details on current output, producer impact

By Julie Gordon

VANCOUVER, Dec 2 (Reuters) – Alberta Premier Rachel Notley said on Sunday that the Western Canadian province would mandate temporary oil production cuts to deal with a pipeline bottleneck that has led to a glut of crude in storage and driven down Canadian crude prices.

The left-leaning New Democratic Party government will force producers to cut output by 8.7 percent, or 325,000 barrels per day (bpd), until the excess crude in storage is drawn down. The cuts will then drop to 95,000 bpd until Dec. 31, 2019.

There are some 35 million barrels of oil in storage in Alberta, which is twice the normal level, the province said.

“When markets aren’t working, when companies are forced to sell our resources for pennies on the dollar, we must act,” Notley said in a live public address on Facebook.

Alberta estimates that current production outstrips pipeline and rail capacity by 190,000 bpd. The production cuts, to be applied by producer rather than per project, will be implemented starting in January.

The discount on Western Canada Select (WCS) heavy blend hit a record at $52.50 below the West Texas Intermediate (WTI) benchmark last month, which meant producers were getting about $14 a barrel compared with about $67 for WTI CLc1.

It has since narrowed slightly as the WTI benchmark price has fallen and crude by rail volumes has ramped up.

The province said the curtailment would narrow the differential by at least $4 a barrel. There will be penalties for non-compliance, but no specifics were given.

Notley said last week her government was moving ahead with plans to buy about 80 locomotives and 7,000 rail cars to boost crude by rail capacity by 120,000 bpd by mid-2020. (Full Story)

The premier, who will face voters in an election that must be held by the end of May, noted that pipelines were preferred to all other options, but blamed successive federal governments for delays getting projects built.

Enbridge Inc’s ENB.TO Line 3 pipeline replacement, which runs from Alberta to U.S. markets, is expected to be online by late 2019. Two other planned export pipelines are facing regulatory delays.

Several heavy crude producers, including Canadian Natural Resources Ltd CNQ.TOand Cenovus Energy Inc CVE.TO, have voluntarily curtailed production in recent weeks.

Mandated cuts are controversial as producers that have their own refineries, like Suncor Energy Inc SU.TO and Husky Energy Inc HSE.TO, do not face the same impact from the low prices.

Notley’s political rivals have called for output caps. The province estimates some 25 producers will be affected by the measures, which will apply only to companies that produce more than 10,000 bpd.

 

U.S. cash crude deals

 

Friday, November 30
WTI Midland January -$7.35, -$7.50, -$7.60, -$7.70, -$7.75
WTS January -$8
WTI MEH January +$5.45, +$5.50
LLS January +$6.60
Mars January +$3.20, +$3.25, +$3.30

UPDATE 1-Russia’s Putin says no hard figures on possible oil output cuts – Reuters News

01-Dec-2018 03:55:09 PM

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Adds Putin quote, background

BUENOS AIRES, Dec 1 (Reuters) – Russian President Vladimir Putin said on Saturday he had no concrete figures on possible oil output cuts, though his country would continue with its contribution to reducing global production.

Russia, one of the world’s major crude producing nations, has been bargaining with OPEC’s leader, Saudi Arabia, over the timing and volume of any reduction. OPEC and non-OPEC oil producers will hold a ministerial meeting Dec. 6-7.

“Yes, we have an agreement to prolong our accords,” Putin told reporters on the sidelines of the G20 summit in Buenos Aires. “There is no final deal on volumes but we together with Saudi Arabia will do it. And whatever is the final figure, we agreed to monitor the market situation and react to it quickly.”

OPEC and its allies will be meeting amid concerns over a slowing global economy and rising oil supplies from the United States.

Oil prices had their weakest month in more than 10 years in November, losing more than 20 percent as global supply has outstripped demand. Losses were limited on Friday, however, on hopes of a production cut agreement. (Full Story)

UPDATE 2-Four Libyan oil export ports reopen after closures for bad weather – Reuters News

02-Dec-2018 05:42:12 AM

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Adds detail from Libyan shipping source

BENGHAZI, Libya/LONDON, Dec 2 (Reuters) – Four Libyan oil export ports that were closed last week because of bad weather have reopened, a Libyan shipping source and port engineers said on Sunday.

Tankers were docking at the eastern Ras Lanuf, Es Sider, Zueitina and Brega ports as well as the western Zawiya terminal linked to the El Sharara field, they said.

On Friday state oil company NOC said bad weather had forced shutdowns at the Ras Lanuf, Es Sider, Zueitina and Zawiya terminals.

Only the western Mellitah port remained closed because of bad weather, the shipping source said.

NOC could not be reached for immediate comment.

The company had said on Friday that production was down by 150,000 barrels per day (bpd), with a a further drop of 50,000 bpd expected because of a lack of storage capacity. Storage tanks at Es Sider are expected to fill within two days.

Production from the country’s Sharara oilfield, which exports crude from Zawia, is expected to fall by 150,000 bpd if the bad weather persists, NOC said on Friday.

Libyan oil production recently hit a five-year high of

about 1.3 million bpd.

 

COLUMN-Hedge funds finish selling crude but increasingly bearish on diesel: Kemp – Reuters News

03-Dec-2018 06:31:42 AM

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John Kemp is a Reuters market analyst. The views expressed are his own

By John Kemp

LONDON, Dec 3 (Reuters) – Hedge fund managers had largely completed the recent wave of selling in crude oil futures and options by the middle of last week but there were heavy sales of derivatives linked to middle distillates.

Hedge funds and other money managers were net sellers of 41 million barrels in the six most important futures and options contracts linked to petroleum prices in the week to Nov. 27 (https://tmsnrt.rs/2Rxg24a).

Funds have been net sellers of 649 million barrels in the last nine weeks, the largest reduction over a comparable period since at least 2013, when the current data series began.

But there were clear signs the wave of selling was ending, at least in crude, with combined sales in Brent and WTI of just 12 million barrels last week, the lowest weekly total since September.

Portfolio managers sold 14 million barrels of Brent, but for the second week running they bought NYMEX and ICE WTI, boosting holdings by 2 million barrels.

Managers who shorted NYMEX WTI between late August and early November covered some open positions, with shorts down to 78 million barrels from a recent peak of 94 million on Nov. 13.

As the selling pressure has eased, oil prices have stabilised, suggesting the market may have found a temporary floor around $50 for WTI and $60 for Brent.

But there were continued heavy sales of futures and options contracts linked to middle distillates such as gasoil and diesel, in a worrying sign for the global economy.

Portfolio managers were net sellers of 10 million barrels of U.S. heating oil and 19 million barrels of European gasoil in the week to Nov. 27.

Net length in U.S. heating oil has been cut to just 15 million barrels from a recent high of 63 million barrels at the start of October, while net length in European gasoil has been cut to 50 million from 112 million.

Middle distillates, which are mostly consumed in freight transportation, manufacturing, mining and farming, are normally the tightest part of the oil market at this late stage of the economic cycle.

Distillate supplies were expected to become especially tight this time with the introduction of new regulations that will force many ship owners to switch from heavy fuel oil to cleaner distillate fuel oil from the start of 2020.

But concerns about distillate availability have evaporated in recent weeks – which may reflect greater confidence about the smooth introduction of the new rules but could also reflect fears about a global economic slowdown.

EXPLAINER-Why is Canada’s Alberta forcing oil production cuts? – Reuters News

03-Dec-2018 06:00:00 AM

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Repeats with no change in text

By Julie Gordon

Dec 2 (Reuters) – Alberta Premier Rachel Notley said on Sunday that the Western Canadian province would mandate temporary oil output cuts to deal with a pipeline bottleneck that has led to a glut of crude in storage and driven down Canadian crude prices.

The production caps are the latest effort by the province’s left-leaning New Democratic Party government to deal with historically low crude prices that are hurting producers and dragging on government revenues. (Full Story)

 

WHAT IS THE DIFFERENTIAL?

Western Canada Select (WCS) heavy blend crude typically trades at a discount to the West Texas Intermediate (WTI) benchmark, with the lower price reflecting the cost of transport and the quality of the product. The discount has typically been around $15, but has widened in the past few months to trade at $40 to $50 below WTI, hitting a record at $52.50 below WTI in October, according to data from Shorcan.

 

WHY IS IT HAPPENING?

Crude production in Alberta’s oil sands is expanding faster than pipeline capacity, creating a bottleneck and leading to a buildup of product in storage. More crude is now moving across the border by rail and by truck, but it is not enough to clear the glut. The stranded barrels are putting pressure on prices. Adding to the woes, refinery maintenance has taken some buyers temporarily offline.

The steep discount has stripped billions of dollars from the Canadian economy by some estimates.

 

WHAT’S HAPPENING WITH PIPELINES?

New pipeline capacity is Alberta’s preferred solution, but projects face fierce opposition from environmentalists and some Aboriginal groups. Construction is under way on Enbridge Inc’s ENB.TO Line 3 pipeline replacement, from Alberta to the United States, with the project expected to be in service by the end of 2019.

TransCanada Corp’s TRP.TO Keystone XL pipeline, from Alberta to the United States, is facing a supplementary environmental assessment after a federal judge in Montana halted construction last month. The impact on timing remains unclear.

The near tripling of capacity on the Trans Mountain pipeline, from Alberta to a port in the Vancouver area, is undergoing a new regulatory review. It is unclear when construction on the federal government-owned pipeline will begin.

 

WHAT ABOUT CRUDE BY RAIL?

Crude by rail has ramped up sharply this year, hitting nearly 270,000 bpd in September. Alberta said last week that it would buy locomotives and rail cars to add an additional 120,000 bpd of crude by rail capacity. It expects the first trains to be running by December 2019, with all online by August 2020. Crude by rail will narrow the differential, but not as much as pipelines.

 

ARE PRODUCTION CUTS THE ANSWER?

The most effective short-term solution is production cuts, but they are not universally popular with producers. Canadian Natural Resources Ltd CNQ.TO and Cenovus Energy Inc CVE.TO have voluntarily curtailed production in recent weeks. But other majors like Suncor Energy Inc SU.TOand Husky Energy Inc HSE.TO, which have refineries and are therefore sheltered from the worst of the price impact, do not want to cut output.

 

WHAT ARE THE POLITICS AT PLAY?

Dealing with the low crude prices is essential for Notley, who faces an election no later than the end of May 2019. Her party faces a tough challenge from the United Conservative Party, led by Jason Kenney, a former Cabinet Minister with the federal Conservatives.

 

SPECIAL REPORT-U.S. ‘clean coal’ program fails to deliver on smog cuts – Reuters News

03-Dec-2018 06:00:00 AM

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This is the first story in a three-part series on U.S. ‘clean coal’ subsidies. For more Reuters Special Reports, double-click onSPECIAL/

By Tim McLaughlin

Dec 3 (Reuters) – Champions of coal say the superabundant fossil fuel can be made environmentally friendlier by refining it with chemicals – a “clean coal” technology backed by a billion dollars in U.S. government tax subsidies annually.

But refined coal has a dirty secret. It regularly fails to deliver on its environmental promises, as electric giant Duke Energy Corp found.

Duke DUK.N began using refined coal at two of its North Carolina power plants in August 2012. The decision let the company tap a lucrative federal subsidy designed to help the American coal industry reduce emissions of nitrogen oxides – also known as NOx, the main contributor to smog and acid rain – along with other pollutants.

In nearly three years of burning the treated coal, the Duke power plants collected several million dollars in federal subsidies. But the plants also pumped out more NOx, not less, according to data from the U.S. Environmental Protection Agency analyzed by Reuters.

The NOx emission rate at Duke’s Marshall Steam Station power plant in Sherrills Ford, North Carolina, for example, was between 33 percent and 76 percent higher in the three years from 2012 to 2014 than in 2011, the year before Marshall started burning refined coal, the EPA data shows.

The utility also discovered that one of the chemicals used to refine the coal, calcium bromide, had reached a nearby river and lakes – raising levels of carcinogens in the water supply for more than a million people in greater Charlotte. Duke stopped using refined coal at the plants in May 2015 because of the water pollution problems, said spokeswoman Erin Culbert. Bromide levels in the region’s drinking water dropped sharply several months later, said Barry Gullett, the city’s water director, in a 2015 memo.

Duke’s experience reflects a fundamental problem with the U.S. clean coal incentive program, a Reuters examination has found. Refined coal shows few signs of reducing NOx emissions as lawmakers intended, according to regulatory documents, a Reuters analysis of EPA emissions data, and interviews with power plant owners, scientists and state environmental regulators.

Consumption figures compiled by the U.S. Energy Information Administration show that American power plants are on track to burn about 160 million tons of clean coal in 2018 – a fifth of the U.S. coal market. That amount would generate about $1.1 billion in incentives at the current tax credit amount of $7.03 per ton.

But most of the plants receiving the subsidy failed to reduce NOx emissions by 20 percent – the threshold required under the policy – in 2017 compared to 2009, the last year before they started burning refined coal, according to a Reuters analysis of EPA data on power plant emissions.

Reuters identified 56 plants that burned refined coal in 2017 using data from the U.S. Energy Information Administration and disclosures from energy companies and refined-coal developers.

Only 18 of that group reduced NOx emissions by more than 20 percent in 2017 compared to 2009. And 15 of those 18 only reported the improvements after installing or upgrading pollution control equipment or switching a portion of power production to cleaner-burning fuel, complicating the question of whether their pollution reductions are attributable to refined coal.

At 22 of the 56 plants, NOx emissions were higher in 2017 while burning refined coal than they were when using raw coal in 2009.

As a group, the fleet of U.S. power plants that burn refined coal also underperformed the rest of the industry in cutting emissions of NOx, the Reuters analysis found. NOx emissions rates declined 19 percent among the 56 power plants that reported burning refined coal in 2017. That compares with a 29 percent reduction by 214 other coal-fired power plants over the same period.

The analysis included U.S. coal-fired power plants with at least 100 tons in annual NOx emissions in 2017.

Investors in plants that failed to show substantial NOx emission cuts collected the tax credit anyway because the Internal Revenue Service allows them to prove emissions reductions with laboratory tests. The results of those tests – conducted for several hours a couple of times a year – often do not translate to real-world improvements at plants that burn millions of tons of coal annually.

The IRS, which approves applications for the tax credit, declined to comment on the design or effectiveness of the testing regimen.

“It’s hard to hang your hat on refined coal as the way to reduce nitrogen oxide emissions,” said Ron Sahu, an environmental engineer who has consulted with utility companies, the EPA and the U.S. Justice Department on power plant emissions.

Sahu, who reviewed the data and methodology used by Reuters, said the analysis shows refined coal has little to no impact in reducing NOx emissions at actual power plants.

“It’s clear that any benefit from refined coal can easily be overwhelmed by modest changes in combustion conditions” at power plants, Sahu said. “It’s debatable that a tax credit should be given for NOx reduction.”

Reuters sent its analysis of EPA emissions data to every major utility operating power plants that burn clean coal, along with the leading U.S. investors who finance clean coal facilities in partnerships designed to take advantage of the subsidy. Most companies declined to comment or did not respond. The handful that did respond did not contest the findings of the analysis.

“We do agree with the overall assessment that emission controls have a more measurable impact on emissions reductions over refined coal,” DTE Energy, a Detroit-based utility that uses refined coal, told Reuters.

The Edison Electric Institute, which represents the U.S. electric utility industry, did not respond to requests for comment.

The law requires all refined coal producers seeking the subsidy to show that burning their product can lead to a 20 percent cut in NOx emissions. The producers also must show a 40 percent reduction in either mercury or sulfur dioxide. They are given the choice of which of those two pollutants to target.

Refined coal investors tend to target mercury as the second pollutant for cuts, according to disclosures by the corporations involved in the program. That’s because reducing mercury emissions with refined coal is a cost-effective way for plants to comply with other, relatively new EPA regulations governing the pollutant. Utilities already have spent tens of billions of dollars on equipment to filter out sulfur dioxide, making additional reductions of that gas more difficult.

The subsidy program has been more successful at combating mercury than NOx, the analysis found. The mercury emission rate at power plants burning refined coal product, for example, fell 75 percent between 2009 and 2017, more than the 40 percent cut required to qualify for the subsidy. Some of those cuts can also be attributed to other pollution control measures, such as the installation of scrubbers that filter coal plant exhaust, according to the EPA.

High exposure to mercury can damage the intestines, kidney and nervous system, according to the EPA. Sulfur dioxide and NOx can cause lung damage.

The refined coal subsidy was adopted by Congress and signed into law by President George W. Bush as part of the American Jobs Creation Act of 2004, alongside credits for generating renewable energy from solar and wind. The legislation had broad bipartisan support and generated little public debate. The subsidy is set to expire in 2021, and coal-state lawmakers, including North Dakota Republican Congressman Kevin Cramer, are moving to extend it for another decade.

“The tax-credit program is bridging the divide to make coal clean and beautiful,” said Cramer, borrowing President Donald Trump’s two favorite adjectives to describe coal.

Trump has promised to advance the interests of the coal industry to support blue-collar energy jobs. His administration has argued coal provides a more reliable fuel for power generation than natural gas, solar and wind, which can be more easily interrupted by pipeline problems or uncooperative weather.

The White House did not respond to requests for comment.

 

‘TOO GOOD TO BE TRUE’

In one of the industry’s first refined coal ventures, power plant operator Associated Electric Cooperative Inc in 2010 signed a 10-year deal with affiliates of Goldman Sachs Group Inc GS.N to burn refined coal at the New Madrid and Thomas Hill power plants in Missouri.

As a tax credit investor, Goldman worked with Advanced Emissions Solutions IncADES.O to build refined coal facilities next to the cooperative’s power plants. A refined coal operation typically costs about $6 million to develop, featuring new conveyor belts and sprayers to move and treat the coal with chemicals, according to presentations to investors by Advanced Emissions. Silos also are installed to store the refined coal chemicals.

The deal called for the utility to sell raw coal to the Goldman-led investment group at cost, and then buy it back at a discount after it was treated, saving the utility millions of dollars, disclosures show.

Goldman and its investment partners collected about $63 million in gross tax credits from the program in 2017, based on an estimate in Associated’s annual report that its plants used 9 million tons of coal that year. Goldman Sachs declined to comment.

Associated had no upfront cost for the refined coal facility and contributes nothing to its annual operating costs. It forecast the arrangement would bring in $7 million to $9 million in annual revenue through at least 2018. “The project at first was questioned as simply too good to be true,” the utility wrote in its 50th anniversary report released in 2011.

The money-making deal also illustrates how the potential benefits of refined coal on air quality can be erased by a variety of complex factors.

The New Madrid plant in southeast Missouri, for example, has seen its production of NOx soar to a higher rate than any other U.S. coal plant while burning refined coal. In 2017, the plant’s NOx emission rate was 298 percent higher than it recorded in 2009, before New Madrid started burning clean coal, according to the EPA. During the first quarter of 2018, the rate jumped even further, to seven times the 2009 level.

Associated Electric said the increase in NOx emissions at New Madrid was due in part to the cooperative’s purchasing tradable pollution credits through the U.S. cap-and-trade system. The market-based system sets an overall limit on pollution, and allows power plants that cut their pollution to earn credits that can be stockpiled or sold to other polluters. When large volumes of credits are generated, the cost of buying them can be lower than the cost of running pollution control equipment.

“At times during the last seven years Associated has met compliance with emissions rules by purchasing NOx credits from the cap-and-trade markets, rather than running the control equipment all year,” the electric cooperative said in a statement, which it issued through Goldman Sachs spokesman Michael DuVally.

The National Mining Association, which represents the U.S. coal industry, supports extending the tax credit. It said the cap-and-trade system was the primary reason NOx emissions went up at many power plants in the Reuters analysis. The association said clean coal lowers emissions, but provided no data to support the claim.

Duke Energy said in a statement that routine changes in electricity demand can also make clean coal ineffective in reducing NOx by changing boiler temperatures and catalyst conditions in pollution control devices.

Sahu, the environmental consultant, said refined coal is most effective at reducing NOx emissions when a utility burns the fuel at a relatively low temperature, something that typically occurs when electricity demands on the plant are low.

But using low temperatures over an extended period can also damage power plant boilers by causing corrosion and soot buildup, he said. Conversely, burning the coal at a relatively high temperature – more common during high-demand periods – can reduce the risk of damage but limit the effectiveness of smog reductions.

The Grand River Dam Authority stopped burning refined coal at its Oklahoma power plant last year because corrosion and other problems outweighed any upside, said John Wiscaver, head of GRDA’s corporate communications.

“We had too many problems with refined coal,” he said.

 

TROUBLED WATERS

Refined coal has also led to contamination of water supplies for more than a million people, according to regulators and utility officials.

In 2012, the South Carolina Department of Health & Environmental Control noticed elevated levels of bromides, the chemicals used to treat refined coal, in the Santee Cooper-Lake Moultrie public water system, said Tommy Crosby, a spokesman for the agency.

The South Carolina plant’s refined coal operation stopped spraying bromide on the coal burned at the Cross Generating Station out of concern for the elevated levels of cancer-causing trihalomethanes, Crosby said, and the levels decreased within six months. Trihalomethanes are created when bromide mixes with the chlorine in treated drinking water.

The plant’s refined coal facility was financed by global insurance firm AJ Gallagher, Boston-based mutual fund giant Fidelity and a U.S. subsidiary of France’s Schneider Electric SE SCHN.PA. Fidelity declined to comment on the elevated TTHM levels and pointed out that federal limits were not exceeded. Schneider Electric and AJ Gallagher declined to comment.

The North Carolina town of Mooresville, downstream of Duke’s Marshall power plant, saw its trihalomethanes surge as high as 127 parts per billion at times in 2015, after the facility discharged bromide used to treat coal into a nearby lake, according to the town’s drinking water quality report.

That did not trigger a violation of federal clean water rules because the town’s annual average of 54 parts per billion that year was below the maximum trihalomethane contaminant level of 80 parts per billion. The same was true of the South Carolina plant, where trihalomethane levels in 2012 rose to 67 parts per billion.

Over the past decade, however, many studies have shown that exposure to trihalomethanes at much lower levels than the federal limit raises the risk of cancer and of problems during pregnancy. Some people who drink water containing TTHMs in excess of the maximum standard over many years may experience problems with their liver, kidneys, or central nervous system, and may have an increased risk of getting cancer, according to the EPA.

In 2016, the EPA included bromide in the Safe Water Drinking Act as an unregulated contaminant to be monitored by public water systems.

Research by Jeanne VanBriesen, director of Carnegie Mellon University’s Center for Water Quality in Urban Environmental Systems, found that bromide additives used to reduce mercury could significantly boost trihalomethanes in drinking water supplies downstream of coal plants. Her 2017 study focused on 22 drinking water systems serving 2.5 million people in Pennsylvania.

Once Duke Energy halted refined coal operations at the North Carolina plant, bromide dropped about 75 percent in the nearby Catawba River, Zachary Hall, director of environmental science at Duke, said in a February 2017 deposition given to the Southern Environmental Law Center.

Duke officials concede that bromide applications contributed to the elevated trihalomethane levels.

“While bromides from our facilities were not the sole cause,” Duke’s Culbert said, “we felt it was important to partner with downstream water utilities and suspend the program.”

About Crude News: I’m the Reuters oil markets correspondent in Houston, Texas. I provide updates from the news wire each morning for people interested in oil markets. It’s my job to talk to traders, brokers and analysts to follow what’s driving crude markets, particularly in the United States. I don’t ask for anything in return except for the occasional answer to a question, and I treat messages and conversations with traders as on background or off the record, meaning it’s not for attribution in a news clip. Please reach out with tips, ideas, interesting tidbits. You can reach me by email, phone, the Eikon terminal or What’s App

 

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Collin Eaton

Energy Reporter

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