U.S. SALES 100 MB
PLATTS - Congress early Friday approved a two-year budget agreement which mandates the sale of 100 million barrels of crude oil from the Strategic Petroleum Reserve within a decade and authorizes sales of another $350 million of government-owned crude this fiscal year.
The House of Representatives passed the legislation by a 240-186 vote after the Senate approved it by a 71-28 vote early Friday. The passage of the bill, which President Donald Trump signed into law Friday morning, ended a brief, partial government shutdown when a funding deadline was missed at midnight.
The budget deal, which will boost federal spending by nearly $300 billion, calls for a total of 30 million barrels of crude to be sold from the SPR in fiscal 2022 through 2025, 35 million barrels to be sold in fiscal 2026, and 35 million barrels in fiscal 2026.
A Congressional Budget Office analysis of the bill, released Thursday afternoon, said the sales would raise $6.36 billion in federal revenue between 2022 and 2027. The analysis assumed an average oil price of nearly $64/b, but ignored the initial cost of purchasing the crude and the costs of storing it in underground salt caverns for years.
The legislation also authorized sales "not to exceed" $350 million worth of crude from the SPR in fiscal 2018. Proceeds from the 2018 sales, initially mandated in a 2015 budget bill, will be used for upgrading and modernizing the SPR, according to the text of the bill.
'RESOUNDING DECLARATION' OF ENERGY SECURITY
The proposal to sell off 100 million barrels from the SPR, the largest non-emergency selloff of government-owned crude in US history, would hinder the purpose of the stockpile, which was created to lessen the impact of a potential supply shock in the global oil market, said Robbie Diamond, president and CEO of Securing America's Future Energy.
"Geopolitical risk is alive and well in the oil market, and the SPR is America?s only formal short-term line of defense against oil supply disruptions and price spikes," Diamond said.
Kevin Book, managing director with ClearView Energy Partners, said the proposal to sell 100 million barrels of SPR crude was "a resounding declaration of lawmakers' new perspective on energy security."
As of last week, the SPR held 665.1 million barrels of crude, including 406.2 million barrels of sour crude and 258.9 million barrels of sweet crude.
Millions of barrels of crude were already scheduled to be sold from the reserve in sales mandated by Congress through 2025.
After the sales now mandated by Congress take place, the SPR will hold as little as 406 million barrels of oil within a decade after all the mandated sales, or about 56% of its total capacity, according to estimates from the Department of Energy, which manages the reserve.
The Trump administration last May announced plans to sell off 270 million barrels of crude from the SPR over the next decade, while shutting two of four storage sites along the Gulf Coast, and selling a 1 million barrel gasoline reserve to the highest bidder. The administration later backed off of those plans.
The US in 1974 reached an agreement with 29 International Energy Agency countries to hold inventories equal to at least 90 days of net crude and petroleum product imports.
The SPR currently holds an estimated 141 days of import protection, and if domestic commercial stocks are counted, the US holds 216 days of import protection, according to the Government Accountability Office.
The budget deal passed Friday also includes a $1/gal US tax credit for blending biodiesel, which would be restored retroactively through end-2017.
The biodiesel tax credit expired at the end of 2016.
Biofuel proponents have been lobbying for a multiyear extension of the incentive since its expiration, and some had urged Congress to convert it from a blender's credit to a producer's credit so it would no longer apply to imported fuel.
ENHANCED OIL RECOVERY
The bill also extends and modifies a tax incentive for enhanced oil recovery, a measure pushed by top Permian oil producer Occidental Petroleum and governors of six oil- and gas-producing states including North Dakota and Oklahoma.
The new incentive offers credits worth $35/mt of CO2 used in EOR and $50/mt of CO2 permanently stored underground.
Smaller tax credits already existed for EOR, but the program was nearly tapped out. The existing program offered credits worth $10/mt of CO2 used in EOR and $20/mt of CO2 stored underground, with an overall program cap of 75 million mt.
ClearView Energy Partners said the existing incentive was on pace to max out in the first half of this year.
Oxy President and CEO Vicki Hollub said last year that it was "imperative" that Congress pass the legislation because the current EOR incentive has reached its limit.
Oxy produced 150,000 b/d of oil equivalent from EOR in third-quarter 2017, about 25% of its overall output of 600,000 boe/d.
That makes Oxy the largest injector of CO2 in the Permian. As of Q2 2017, it operated 34 CO2 projects in Permian, with more than 15,000 active wells, of which 6,100 are injectors.
By flooding mature fields with CO2, Oxy said it boosts oil recovery by 10%-25%.
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GAZPROM - The parties discussed relevant issues related to bilateral cooperation, including the Baltic LNG project. Emphasis was placed on the priority measures aimed at developing a joint design concept (pre-FEED).
BHGE - U.S. Rig Count is up 11 rigs from last week to 1,063, with oil rigs up 8 to 869, gas rigs up 4 to 193, and miscellaneous rigs down 1 to 1. Canada Rig Count is up 13 rigs from last week to 195, with oil rigs up 8 to 127 and gas rigs up 5 to 68.
REUTERS - Brent crude futures had risen $1.02 cents, or 1.3 percent, to $81.28 a barrel by 0637 GMT. The contract dropped 3.4 percent on Thursday following sharp falls in equity markets and indications that supply concerns have been overblown. U.S. West Texas Intermediate (WTI) crude futures were up 80 cents, or 1.1 percent, at $71.77 a barrel, after a 3 percent fall in the previous session. WTI is on track for a 3.5 percent drop this week.
EIA - Brent crude oil spot prices averaged $79 per barrel (b) in September, up $6/b from August. EIA expects Brent spot prices will average $74/b in 2018 and $75/b in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average about $6/b lower than Brent prices in 2018 and in 2019.