Russia plans to use its post-Soviet era record high November oil production as its baseline when it cuts output under this week's deal with OPEC, Deputy Energy Minister Kirill Molodtsov said on Friday.

Russia has promised to gradually cut output by up to 300,000 barrels per day (bpd) in the first half of 2017 as part of a deal with other producers aimed at supporting oil prices.

Its daily oil production rose to an average of 11.21 million bpd in November, a new post-Soviet era high, energy ministry data showed on Friday.

That was 500,000 bpd higher than in August, the month before Russia and OPEC reached a preliminary agreement in Algiers to cut production.

Under this week's follow-up agreement, the first between OPEC and Russia since 2001, specific cuts for individual states were set, with almost all OPEC members agreeing to cut from October levels.

But Russia will use its November-December output levels, Energy Minister Alexander Novak told reporters on Thursday.

November's production rose only slightly from October, by just 10,000 bpd, ministry data showed.

"The peak of daily production for November was 11.231 million barrels," Deputy Energy Minister Molodtsov told a conference in Moscow.

"All our agreements will clearly be formed around this figure, he said.

Lukoil and Surgutneftegas raised output in November while production slipped at fields operated by Rosneft, Gazprom Neft and their joint venture Slavneft, preliminary data showed.

Rosneft, Gazprom Neft and Lukoil have all launched new fields this year and increased drilling, despite low oil prices.

Energy Minister Novak said on Thursday that all Russian companies would contribute to Russia's planned output cut.

Novak also said Azerbaijan, Kazakhstan, Mexico, Oman, Bahrain and other non-OPEC producers could join the deal and that he expected them to jointly match Russia's cut of 300,000 bpd.

http://www.reuters.com/article/us-opec-meeting-russia-idUSKBN13R1BS

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Meeting between OPEC & non-OPEC to take place in Moscow on Dec 10. sources.

@Lee_Saks

Asian crude importers could see their Middle East term supplies affected by OPEC's agreement to cut production, but tighter sour crude supply may open up arbitrage opportunities for moving more sweet crude from the Atlantic, market sources said Thursday.

OPEC's plan to hold production at 32.5 million b/d starting January 1, 2017 -- the first coordinated cut since the depths of the global financial crisis in 2008 -- amounts to an approximate 1.2 million b/d cut from the producer group's current output levels. The deal exempts Libya and Nigeria and is contingent on key non-OPEC producers also agreeing to cut 600,000 b/d.

"This could have a big impact [on Asian refiners] as it's Middle East crude [most affected by the] cuts. So if fulfilled, Middle East crude [supply] gets a lot tighter," a Singapore-based trader said.

But North Asian refiners said OPEC's announced production cut could be absorbed within the tolerance flexibility clause in their term contracts with Middle East suppliers.

"We will need to pay attention to whether suppliers will keep their supplies at 100% against contracts," a North Asian refiner source said. "A focal point is whether [OPEC's output deal] will be absorbed within [contractual] tolerance or [results in] deeper cuts."

Asian crude importers will be able to assess the seriousness of OPEC's intention to cut output by around mid-December when they nominate VLCCs for January crude loadings, a North Asian refiner said, adding that that is when importers will be informed about any cuts in term supply volumes from the Middle East suppliers.

ARBITRAGE SUPPLIES

The Middle East sour crude market had been under upwward pressure in the lead up to the OPEC meeting amid expectations that the group would agree to a production cut that will tighten sour crude supply.

The M1 Brent-Dubai exchange of futures for swaps, or EFS, a key spread watched by the market to evaluate the value of sweet crudes against sour crudes, was at its narrowest in 13 months Monday at $1.79/b, according to S&P Global Platts data.

The M1 EFS was last narrower on October 29, 2015, at $1.72/b. A narrow Brent-Dubai EFS opens up arbitrage opportunities for Asian importers to bring in sweet crudes from the West instead of Middle East sour grades. The EFS averaged $2.11/b in November, down from $2.64/b in October.

The OPEC deal, when implemented, could potentially further narrow the spread between sour crudes in the Middle East and sweet crudes in Northwest Europe, making arbitrage barrels from the West attractive to Asian refiners, a trader said.

REBALANCING OIL MARKETS

Under the OPEC deal, Saudi Arabia agreed to cut its production by 486,000 b/d from October levels, as estimated by OPEC's secondary sources, to 10.046 million b/d. That would be in line with its typical season decline in production, as its domestic consumption typically shrinks in the winter.

Iraq, which had agitated in the weeks leading up to the meeting for an exemption, agreed to cut 209,000 b/d from its October levels to 4.351 million b/d.

Iran, meanwhile, will be allowed to produce 3.797 million b/d, an increase from its October production level of 3.69 million b/d, according to OPEC's secondary source estimates.

Iran had long insisted on regaining its pre-sanctions output of some 4 million b/d before agreeing any output restraints.

Despite questioning the compliance and execution of the OPEC and non-OPEC output deal, market sources and analysts said the deal would speed up rebalancing of the oil markets when implemented.

"There's execution risk," IG Chief Market Strategist Chris Weston said. "Will they stick to their quotas?"

But Weston said the OPEC deal was "a catalyst for the rebalancing process. It will help address the excess inventories of oil sloshing around."

Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said the global oil markets could be rebalanced "as early as in the third quarter of 2017" if OPEC implements its agreed production cut and oil production from Libya and Nigeria stays at current levels.

http://www.platts.com/latest-news/oil/tokyo/analysis-asia-sees-opec-deal-could-spark-arb-27722180?hootpostid=73507bd3dda811154e35fc631face26d

OPEC’s recent announcement it would cut crude oil production has boosted Asian spot LNG prices to their highest this year so far.

Spot prices for Asian LNG increased 30 cents from last week to around $7.40 per million British thermal units (mmBtu), Reuters reported on Friday citing trade sources.

Driving the price up was the agreement reached between OPEC and Russia to cut the output in order to tackle the oversupply that put pressure on the market for over two years.

Following the deal, oil prices jumped over 10 percent, reaching $53 per barrel.

The rise had an effect on Asian spot LNG prices that hit the highest level since November 2015. The report notes that 80 percent of Asian LNG supply contracts are linked to the price of crude and the cost of shipping has also been a contributor to the rise of the spot LNG price.

However, the cut in crude output could have another effect on the spot market as the price difference between oil linked contracts and spot cargoes could increase significantly.

Reuters cited Wood Mackenzie’s analyst Chong Zhi Xin as saying that the buyers could start opting for spot cargoes instead of their long-term contracted supplies.

The cold weather is also playing a significant role in the spot LNG price jump since it is expected that Asian utilities start purchasing cargoes from the spot market in order to meet the winter demand.

http://www.lngworldnews.com/report-opec-deal-pushes-asian-lng-prices-to-7-40mmbtu/

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Australia's largest domestic wool producer may have to close its doors because it is unable to get a new natural gas deal, potentially putting 40 people out of work.

Several suppliers told Victoria Wool Processors at Laverton North, in Melbourne's western suburbs, they were unable to meet the business's demands for gas next year because of a supply shortage.

It takes 110,000 gigajoules of gas to heat and treat the 12,000 tonnes of greasy wool the company produces every year.

David Richie, the company's general manager, said the current contract with Energy Australia expires at the end of the year.

"It's a scary thought to go into Christmas not knowing that you've secured a vital ingredient," he said. "You can't run these plants without gas."

The business is not large enough to buy gas wholesale and retailers have offered quotes for double the current price, which Mr Richie says will make the company unviable.

In a statement, Energy Australia said conditions in the gas market have made it harder to secure supply.

"Australia depends on reliable and affordable supplies of gas to warm homes, power businesses and to sustain jobs, but today there is less gas available in the market, despite Australia's abundant natural resources," a statement read. 'If you believe in manufacturing, this needs to be sorted out'

Mr Ritchie called on the Government to limit the amount of gas exported from Victoria.

"Australia has just become the biggest exporter of gas in the world. If you believe in manufacturing, this needs to be sorted out quickly," he said.

Victorian Energy Minister Lily D'Ambrosio said there was no shortage of gas in Victoria, but prices were rising.

"We have more than sufficient gas right now. Victoria will remain a net exporter of gas. And the future is a sure one," she said.

"We are seeing gas prices that are increasing as a result of the fact that we are having gas from Australia for the first time exported globally from Queensland."

Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts said Australia would run out of gas by the end of the decade unless there was new exploration soon.

"The East Coast gas market is very tight and is becoming tighter and by 2019 there is expected to be a shortfall of supply on the East Coast and that's going to have an impact on households and industry," he said.

The Victorian Government introduced legislation banning exploration and development of unconventional gas, including fracking, earlier this year.

"Gas is obviously widely used in industry and it's critical for the plastics and chemicals industry, the paper industry, fertilisers, the production of a host of products," Mr Roberts said.

Victorians use about four times the amount of gas of residents in Queensland and New South Wales, he added.

http://www.abc.net.au/news/2016-12-02/victoria-wool-processors-gas-shortage/8086732

The amount of gas used by UK natural gas-fired power plants to generate electricity has risen above 80 million cu m/d in recent days for the first time in at least six years, data from National Grid showed Friday.

Some 84 million cu m of gas was used to generate electricity in the UK on both Tuesday and Thursday, marking the first time the 80 million cu m/d barrier was breached since at least October 2010.

Gas-for-power demand in the UK has been significantly higher year on year in 2016 due to the closure of coal-fired power plants and more favorable generation economics in recent years.

Indeed, the total gas-for-power demand for November breached the 2 Bcm mark for the second successive month, rising 7% month on month and 69% year on year to 2.14 Bcm at an average 71 million cu m/d.

The last time UK gas-for-power demand was above 2 Bcm for a calendar month was January 2011.

With gas-fired generation economics more favorable than in recent years - - despite NBP prices having rallied since the beginning of the winter-delivery period -- gas-for-power demand was expected to remain elevated for the remainder of December and into early 2017.

http://www.platts.com/latest-news/natural-gas/london/uk-gas-for-power-demand-rises-above-80-million-26611420

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India is giving priority to moving toward a natural gas-based economy and efforts must be made to raise local production of the fuel while also creating infrastructure to import it, Prime Minister Narendra Modi told an energy conference on Monday.

"Natural gas is the next-generation fossil fuel, cheaper and less polluting," Modi said in an address at India's flagship energy event, Petrotech.

"Efforts must be made to increase natural gas production whole also creating import infrastructure to meet the growing domestic demand," Modi said.

http://www.reuters.com/article/us-india-energy-idUSKBN13U0IU

ExxonMobil expects to deliver 7.9 million tonnes of liquefied natural gas from Papua New Guinea this year, around 14 percent above nameplate capacity of its PNG LNG plant, the company's PNG head said on Monday.

The company, which operates PNG LNG and is the biggest owner, said it expects to be able to produce at 16 percent above nameplate capacity of 6.9 million tonnes a year, ExxonMobil's PNG managing director Andrew Barry said at a conference in Sydney.

http://www.reuters.com/article/papua-lng-exxon-mobil-idUSS9N1DE00X

For the three titans of Latin American oil -- Pemex, PDVSA and Petrobras -- last week’s OPEC-driven price rally won’t be enough to halt a slow descent from the ranks of international crude heavyweights.

Even as news of the cartel’s 1.2 million-barrel-a-day output cut spurred the steepest three-day oil gain in 15 months, the biggest Latin American producers remain hobbled by financial, political, technical and structural problems. Mexico and Brazil have been turning to outside investors to help boost output, with Mexico on Monday offering up stakes for the first time to drill in its deep waters.

Oil prices are an especially pressing issue for the behemoths responsible for large chunks of their local and national economies, all while supplying one of every 13 barrels of crude produced around the globe every day. Unlike North American explorers who were free to fire workers and abandon costly, high-risk projects as crude collapsed, the Latin companies operate under close bureaucratic controls that hinder their ability to respond to market forces, said Thomas McNulty of Navigant Consulting Inc.

“Higher prices are always a good thing but these are state-owned quasi-companies that have tremendous social obligations to their countries and little freedom to take rational cost-cutting steps,” said McNulty, director of Navigant’s valuations and financial risk management practice. “U.S. companies have to pay taxes, sure, but they don’t have to build schools.”

Petroleo Brasileiro SA said it isn’t changing its business plan in response to OPEC’s production agreement. Mexico’s Energy Ministry said it won’t change its auction plans because of OPEC. Petroleos de Venezuela SA, as the Venezuelan state-oil company is formally known, didn’t respond to requests for comment.

Brent Surge

Brent crude, the international benchmark, surged as much as 15 percent in the three trading sessions following a Nov. 30 meeting at which the Organization of Petroleum Exporting Countries agreed to individual production cuts for the first time in eight years. The three-day rally was the largest since August 2015. Brent dipped to a 12-year low around $27 a barrel as recently as January; since then, the price has doubled to more than $54.

“Higher prices are positive for these companies to varying degrees,” said Lucas Aristizabal, a senior director at credit-rating company Fitch Inc. For Petroleos Mexicanos and PDVSA, the benefits are diminished by staggering debt loads that eat up cash that could otherwise go toward drilling to sustain production and replenish spent reserves, he said.

“Pemex needs much higher prices than this under the current taxation scheme to become cash-flow neutral while investing enough to replenish reserves,” Aristizabal said.

Mexican Oil

Once the world’s third-largest oil producer, Mexico now pumps less than the U.S. state of Texas, thanks to dwindling output from the once-gargantuan Cantarell field and lack of investment in new drilling technology. Aristizabal estimated the Mexican company, whose nearly $100 billion in debt is more than twice that of Exxon Mobil Corp., needs crude to fetch $80 a barrel to $100 a barrel to escape it downward spiral.

Mexico’s deep-water oil auction is designed to attract international oil giants to develop offshore production. It’s a crucial test of foreign investment, with Mexican oil output forecast to fall below 2 million barrels a day next year, the lowest level since 1980.

To read more on Mexico’s oil auction, click here

Pemex CEO Jose Antonio Gonzalez Anaya praised the OPEC agreement and price rise as “a breath of fresh air.

“It’s a good development for the energy market and for Pemex,” he said in a Dec. 1 interview on Bloomberg Television.

PDVSA Payments

PDVSA, facing $6.4 billion in debts coming due next year, won’t get much relief from its liquidity crisis, despite the nascent crude rally, Aristizabal said. Company Chairman Eulogio Del Pino said the cut may push oil prices to $70 in six months. Added cash is important as the producer uses a 30-day grace period to pay interest due on a 2035 bond. Venezuelan President Nicolas Maduro has blamed the U.S. Treasury and Citigroup Inc. for the delayed payment.

Venezuela is one of only two cartel members in the Western Hemisphere, and PDVSA will be required to cut some output. That means abandoning some of the potential upside from the price increase, Aristizabal said.

Petrobras, which has been enmeshed in Brazil’s biggest corruption scandal, is in a better position to take advantage of rising prices than it was in 2011 when crude surged past $100 a barrel. The previous Brazilian administration of Dilma Rousseff pressured the state-controlled company to keep domestic gasoline and diesel prices below international levels in an effort to contain inflation, costing an estimated $35 billion in fuel subsidies in the middle of a commodities boom.

Fuel Sales

The Rio de Janeiro-based producer has been selling fuel at a premium for the past two years, partially recovering the losses from import subsidies. In October, the company set a policy of monthly revisions to guarantee prices remain above import costs. Petrobras reiterated its commitment to keep fuel prices above international parity in an e-mailed response to questions.

Rising prices will also guarantee the viability of deep-water fields that are estimated to hold billions of barrels of oil. Chief Executive Officer Pedro Parente has said the company’s break-even cost is around $40 a barrel. Petrobras has been in talks with potential bidders, including Total SA, for joint ventures to get oil from the so-called pre-salt areas offshore.

Brazil’s energy ministry has said it has no authority to set production limits for Petrobras and other companies producing in Latin America’s largest economy, offering the potential for it to capitalize with more output as OPEC members scale back.

https://www.bloomberg.com/news/articles/2016-12-05/crippled-latin-oil-giants-get-no-miracle-cure-in-post-opec-rally

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Oil workers in one of Argentina's most productive basins will go on strike for 48 hours next week to protest a decision by state-run YPF to not return 33 rigs to the field, which could cost 1,700 jobs, union leaders said Friday.

Guillermo Pereyra, a national senator who doubles as the secretary general of the Union of Private Oil Workers in Neuquen, Rio Negro and La Pampa, said the strike is to start Monday at 8 am local time.

"The strike will affect all activities" in the Neuquen Basin, he said in a televised news conference.

The southwestern basin produces 40% of the country's 513,000 b/d of crude and 57% of its 124 million cu m/d of gas, according to data from the Argentine Oil and Gas Institute, an industry group.

Pereyra said the action is the start of a campaign to resolve worker complaints of layoffs, poor work conditions, an increase in the number of accidents in the fields and inadequate responses from YPF.

If things do not improve, 'we will deepen this measure and it will be for 72 hours," Pereyra said, suggesting that it could even be extended for longer.

Separately, Manuel Arevalo, secretary general of a union for field managers that will also participate in the strike, said YPF's decision to not bring back the rigs has made it harder to negotiate with the company.

"You cannot negotiate when there is a threat of layoffs," he said on LU5, a radio station in Neuquen.

The decisions to walk off the job comes a day after YPF, the country's biggest oil and gas producer, said it would not bring 33 rigs back into the field after sidelining them in February. The company had been paying the 1,700 rig workers since.

YPF said it could no longer afford to pay the suspended workers, which totalled an annualized amount of $100 million, and would instead focus its drilling on fields with the best potential for production.

The 33 rigs had been working in maturing conventional fields, and the company has said it will focus on assets with the greatest growth prospects, such as in the Vaca Muerta shale play and the Lajas and Mulichinco tight plays.

"We have to concentrate on investments where it pays and pays quick," YPF CEO Ricardo Darre said in August.

YPF has slashed its capital-expenditures plan by 20%-25% for this year, leading it to forecast flat production for 2016 on the year.

It has since said the outlook for no growth in its overall hydrocarbon output could continue through 2017, as a decline in international oil prices for much of this year has brought down local crude prices, cutting profit margins. At the same time, a recession in the nation has left little margin to raise diesel and gasoline pump prices to finance exploration and production. There also is little margin for YPF the take on more debt, according to the company.

YPF produces 45% of the country's oil and 31% of its gas, according to industry data.

http://www.platts.com/latest-news/oil/buenosaires/argentina-oil-workers-to-strike-next-week-after-21238106

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West Texas’ active Permian Basin added seven rigs actively drilling for oil this week.

While the Permian begins to boom, the net rig count in the rest of the country declined. The U.S. rig count grew by just four overall this week, including three drilling for oil and one seeking natural gas, according to Baker Hughes.

The Williston Basin, which is mostly in North Dakota, lost two rigs, while two rigs were removed from Colorado’s DJ-Niobrara basins. Louisiana lost four.

South Texas’ Eagle Ford shale, however, tacked on two.

The total count is 587 rigs, up from a low of 404 in May, according to Baker Hughes. Of the total, 477 are primarily drilling for oil.

The Permian now accounts for 235 rigs, almost half of the nation’s oil rigs. The next most active area is Texas’ Eagle Ford shale with 40 rigs, according to the Baker Hughes data.

Despite this week’s increase, the oil rig count is down 70 percent from its peak of 1,609 in October 2014, before oil prices began plummeting. But U.S. oil prices have risen above $51 a barrel after OPEC agreed Wednesday to curb oil production.

http://fuelfix.com/blog/2016/12/02/the-permian-leads-another-oil-rig-count-jump/

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20 gas rigs were added along with 6 oil rigs. The number of rigs drilling is up 13% year over year as prices begin to improve for both crude oil and natural gas. Alberta saw the biggest gain, adding 20 drilling rigs to a total active fleet of 128.

http://boereport.com/2016/12/02/western-canada-adds-26-rigs-to-its-weekly-count/

The U.S. Army's denial of an easement for the Dakota Access Pipeline, after permitting and legal obligations were followed, sets an uncertain precedent for new projects despite President-elect Donald Trump's promise to support energy infrastructure.

The decision came after months of protests by the Standing Rock Sioux tribe and others who said the line could desecrate tribal grounds, or a spill could contaminate drinking water.

While most of the 1,172-mile (1,885-km) pipeline is complete, Energy Transfer Partners, the line's owner, needed an easement from the U.S. Army Corps of Engineers (USACE) to drill under Lake Oahe. The lake, a water source formed by a dam on the Missouri River, has been the focus of protesters.

The Army's intervention sets an unsettling precedent, analysts and industry groups told Reuters, because Energy Transfer had undergone the necessary environmental reviews and permitting processes to move ahead with construction.

"I think it sends a horrible signal to anyone wanting to invest in a project and I strongly suspect those policies will be discontinued on Jan. 20th," said Brigham McCown, the former head of the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) under George W. Bush, referring to the inauguration of President-elect Donald Trump.

Still, the decision to deny the easement tempers some of the optimism pipeline companies assumed following the election of Trump, who is seen as more supportive of oil and gas projects.

Energy Transfer Partners said in a statement the decision was politically motivated and it did not intend to reroute the line.

DELAYS & RISING COSTS

Beyond the federal approval issues, state and local governments have also mobilized against pipelines. Earlier this year, Georgia's state legislature passed a bill to restrict pipeline developments, stopping a gasoline line from Florida to South Carolina from being built.

Energy Transfer chief executive Kelcy Warren, a donor to Trump's campaign, said his election was a positive. Last week Trump for the first time voiced support for the Dakota Access project.

Trump has also said he would support TransCanada Corp's Keystone XL, which the Obama Administration rejected last year.

Denying permits for an already-approved pipeline adds a new level of uncertainty to projects. Oil companies have already been facing growing resistance from environmental groups that have resulted in delays or unanticipated costs.

Equipment used for the Dakota Access line has been set on fire, and in October, a group of protesters turned off valves on pipelines transporting oil from Canada to the United States. Together, those lines had capacity to move some 2.8 million barrels per day of oil.

"Until you see that Trump has a track record of approving things and showing that things can get built in time, it's tough to say it's not a murky environment for pipelines," said Sarp Ozkan, manager of energy analytics for Drillinginfo.

That means pipelines could face higher risk premiums and have a harder time getting volume commitments from shippers that underpin such projects, Ozkan said.

Energy Transfer has said it expects to lose almost $84 million each month the Dakota Access pipeline is delayed, and that losing shippers could result in its cancellation, according to a court filing.

"I think midstream companies will hope that each project can be decided based on necessary permitting approvals, but there will be increased risk where agencies like USACE are involved," said Sandy Fielden, director of research in commodities and energy at Morningstar.

While the Standing Rock Sioux have said they would support a rerouting of the line, others, such as the Indigenous Environmental Network (IEN), want it canceled.

"Given Trump's support of the Dakota Access, and the Keystone XL, we remain cautious," said Dallas Goldtooth, a spokesman for IEN.

http://www.reuters.com/article/northdakota-pipeline-future-idUSL1N1E002Y