This week's roller-coaster ride in the global crude oil market was likely fueled in part by the sudden liquidation of a $600 million leveraged fund bet on falling prices, market sources said on Wednesday.

Unknown investors in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note (ETN) - which offers the ability to make a bearish bet on prices magnified threefold, with gut-churning ups and downs - bailed out early this week after jumping into the fund in January, ETN data show.

Some 1.8 million shares worth more than $602 million were redeemed on Tuesday, the largest outflow from the ETN in the past year, according to data from FactSet Research.

The selloff suggests that at least some big investors are betting that the worst of an 18-month oil market rout is over after U.S. prices fell to $26 a barrel last month for the first time since 2003. Trading activity has also jumped to the highest levels on record.

"Speculators are getting out of the down oil market. People start unwinding these positions because they think they have gotten their juice out of it," David Nadig, vice president, director of exchange traded funds for FactSet, said.

The DWTI note inversely tracks the S&P GSCI Crude Oil Index ER, which follows movements in the oil market. And because it offers investors three times the exposure, the impact on the underlying futures is magnified - as is the volatility in the ETN, whose price more than doubled in the first three weeks of January before halving again as oil futures rebounded.

The net asset value of the fund - one of a handful of exchange funds that allows investors to trade oil without the complexity of a futures exchange - fell from close to $1 billion to $417 million on Tuesday and to $322 million on Wednesday, according VelocityShares' website.

As a result, the mass exodus likely forced the ETN's issuer, Credit Suisse, to quickly buy back short positions as investors redeemed shares.

VelocityShares, a unit of Janus Capital Group, was unable to comment on the trading activity.

To unwind alone may have amounted to upwards of 40,000 futures contracts on Tuesday, according to estimates by analysts.

There is a day's lag between when redemptions and creations are ordered and when they show up in share figures, according to Nadig, meaning that Tuesday's flows were ordered on Monday, when oil reversed a three-day rally to close $2 a barrel lower.

On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.

Volume in the March West Texas Intermediate futures contract surged on Wednesday to more than 777,000 lots traded, its second highest volume on record, according to data via ThomsonReuters' Eikon. DWTI volume was also unusually heavy on Wednesday, with more than 1.9 million shares traded.

To be sure, redemptions in the short ETN were not the only driver of higher crude prices. A falling dollar and renewed hopes for a meeting among non-OPEC and OPEC members to curtail global production also bolstered futures values. [O/R]

It is unclear who may have been behind the ETN position, but they ended up on an extraordinarily wild ride. The investment appears to have been made in January, based on asset data showing the note rarely held more than $200 million last year.

Its price peaked at more than $484 on Jan. 20, when oil traded at a low of $26.55 a barrel, but then fell to as low as $225 last week. It surged to $335 on Tuesday before dropping 25 percent on Wednesday. It is still up 24.5 percent for the year.

http://www.reuters.com/article/oil-futures-etf-idUSL2N15I3AH

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Spanish refiner Cepsa will ship a 1-million barrel cargo of Iranian oil to its refineries, according to vessel agents' data and market players' information on Wednesday.

Global oil markets, already oversupplied, have been jittery over the return of Iranian oil after the lifting of international sanctions imposed over Tehran's nuclear programme.

According to Reuters shipping data,  epsa has chartered the suezmax Monte Toledo which will load at Iran's Kharg Island for delivery to the Spanish ports of Huelva and Algeciras.

Iran is on track to raise oil production by 500,000 barrels per day after the lifting of Western sanctions last month. Reuters shipping data shows that since sanctions were removed a number of vessels have been tentatively fixed to sail to various locations in Europe and the Mediterranean.

Trading sources said Litasco, the trading arm of Russia's Lukoil, looked set to become the first buyer in Europe since the lifting of sanctions.

http://www.reuters.com/article/iran-spain-oil-idUSL8N15I3OI

Peru said it plans to decrease the royalty payments it receives from oil companies by July in a bid to survive the oil price crash.

The country said it also might allow firms to postpone part of their payments.

The move, which was announced by Perupetro, said 20 companies with exploratory contracts and three with extractive rights have declared force majeure as the drop in oil price hits profits.

Since 2014, crude oil prices have decreased by about 70%.

Rafael Zoeger, the president of Perupetro, said:”Otherwise what’s going to happen is they’re going to start giving up their oil blocks.

“Companies that can’t do business are going to leave.”

Several global oil companies operate in Peru, including Pacific Exploration & Production, Perenco, China National Petroleum Agency and Ecopetrol.

Peru is a net oil importer, and its production dropped to 58,000 barrels per day in 2015, almost half of peak production in the 1970s.

https://www.energyvoice.com/oilandgas/100645/peru-to-lower-royalty-payments-from-oil-companies/

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Royal Dutch Shell Plc, which is on the brink of completing the oil industry’s largest deal in a decade, said fourth-quarter profit fell 44 percent after the rout in crude prices deepened.

Profit adjusted for one-time items and inventory changes shrank to $1.8 billion, near the midpoint of the preliminary $1.6 billion-to-$1.9 billion range it gave last month, Shell said in a statement Thursday. That matches the $1.8 billion average estimate of 14 analysts surveyed by Bloomberg, and compares with profit of $3.3 billion a year earlier.

Crude’s collapse has slashed earnings for oil companies from Exxon Mobil Corp. to BP Plc, leaving them struggling to strike a balance between investing for growth and making shareholder payouts. Shell is betting its $50 billion acquisition of BG Group Plc will help it maintain dividends and increase oil and gas production at a time when cash flow is shrinking.

Shell’s shareholders last month approved the company’s plan to buy BG, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan, despite the 40 percent tumble in crude prices since the deal was announced. The average price of benchmark Brent crude in the fourth quarter was $44.69 a barrel, the lowest since 2004. Average prices have lost more than $10 this quarter, making it harder for Shell to deliver on its promises to investors.

The company’s B shares, the class of stock used in the deal with BG, have dropped 6.8 percent this year. The eight-member FTSE 350 Oil & Gas Producers Index has declined 4.7 percent.

The acquisition of BG is due to become effective on Feb. 15.

http://www.bloomberg.com/news/articles/2016-02-04/shell-fourth-quarter-profit-drops-44-as-crude-oil-prices-tumble

Today, Statoil presents its update to the capital markets, announcing a step-up in its improvement programme by 50% to USD 2.5 billion peryear in 2016. One year ahead of plan, Statoil delivers annual cost improvements of USD 1.9 billion, compared to its 2016 target of USD 1.7billion. Statoil is reducing organic capital expenditure from USD 14.7 billion in 2015 to around USD 13 billion in 2016, and has substantiallyimproved its portfolio of non-sanctioned projects, with planned start-up by 2022, reducing the average break-even oil price from USD 70 perboe in 2013 to USD 41 per boe in 2016.

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Halliburton Co. was given more time by the European Union to come up with a package of asset sales that will assuage competition concerns over its takeover of oilfield services rival Baker Hughes Inc.

The company said Wednesday that it would offer the remedies soon, after the EU pushed back the deadline for reviewing the deal by 20 working days to June 23.

"Halliburton believes the extension will facilitate the commission’s review of a remedies package, which will be formally offered by the company in the near future in order to address the commission’s concerns," Emily Mir, a spokeswoman for the Houston-based company, said in an e-mail.

The EU merger authority opened an in-depth probe into the deal on Jan. 12, citing concerns that combining the the second- and third-largest suppliers to oil exploration companies may impede competition and increase prices.

Halliburton last month expanded a list of assets to sell to try to convince antitrust authorities across the world that the deal won’t harm competition. The oilfield services company said it presented its new plan to the U.S. Justice Department in January. It didn’t disclose what new assets it’s planning to divest.

The cash and stock deal was valued at $34.6 billion when it was announced near the end of 2014, just as oil prices had begun their downward spiral. Shares of both companies have dropped more than 30 percent since then. Halliburton would have to pay Baker Hughes a breakup fee of $3.5 billion if the bid is dropped.

http://www.bloomberg.com/news/articles/2016-02-03/halliburton-baker-hughes-buy-time-pushing-eu-deadline-to-june-23

Australia's second-largest energy retailer AGL Energy Ltd has quit its coal-seam gas business as plunging oil prices undermined the economics of the projects, highlighting the pressure on the country's energy industry.

AGL has been trying to sell its gas assets in Queensland state for several years, but said in a statement on Thursday that efforts to sell the Moranbah, Silver Spring and Spring Gully sites may take time because of "difficult market conditions."

The collapse in oil prices has impacted long-term gas prices for those projects and will result in a A$498 million ($357 million) impairment charge to its half-yearly results next week, it said.

The Sydney-listed company said it will not move forward with its Gloucester project and will stop output at its Camden project, both in New South Wales, earlier than planned. The Gloucester project was halted as "disappointing gas flow" on a test well showed lower-than-expected project output from the site.

These decisions will bring another A$142 million impairment charge, AGL said.

While AGL, Australia's biggest carbon polluter, has faced pressure from environmental campaigners over its NSW gas projects for years, CEO Andy Vesey said the company decided to bail on those assets because they did not justify investment totalling A$1 billion.

AGL and other energy retailers' forays into gas exploration and production and gas exporting seemed like a natural diversification for the retailers when the projects were planned and oil prices, used to formulate gas-sales prices, were above $100 a barrel. With oil now trading above $30 a barrel, the outlook for the plans are not as rosy.

Australia's largest energy retailer Origin Energy Ltd in September asked shareholders for $1.8 billion to cut debt as the weak oil price hampered the outlook for A$25 billion Australia Pacific Liquefied Natural Gas project.

Oil and gas producer Santos Ltd has also put its assets on the block to cope with the downturn.

"If anybody knew that the oil price was going to tumble from $120 a barrel to $30 a barrel, we'd all be very rich," said Shaw and Partners analyst David Fraser.

"People far more specialised than AGL couldn't see it coming."

Investors welcomed the move, sending AGL shares up as much as 2.4 percent to touch a record intraday high of A$18.95, in a higher overall market.

The company reports half-year results on Feb. 10, with analysts forecasting an underlying net profit of A$708 million, up 12 percent on the prior corresponding period, according to Thomson Reuters Starmine.

http://www.reuters.com/article/agl-energy-australia-gas-idUSL3N15I67B

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U.S. crude oil refinery inputs averaged over 15.6 million barrels per day during the week ending January 29, 2016, 24,000 barrels per day less than the previous week’s average. Refineries operated at 86.6% of their operable capacity last week. Gasoline production decreased last week, averaging over 8.6 million barrels per day. Distillate fuel production decreased last week, averaging over 4.4 million barrels per day.

U.S. crude oil imports averaged about 8.3 million barrels per day last week, up by 647,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.0 million barrels per day, 7.8% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 624,000 barrels per day. Distillate fuel imports averaged 191,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.8 million barrels from the previous week. At 502.7 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 5.9 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 0.8 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 5.6 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 9.5 million barrels last week.

Total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.7 million barrels per day, down by 0.9% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 16.0% from the same period last year. Jet fuel product supplied is up 2.8% compared to the same four-week period last year.

http://ir.eia.gov/wpsr/wpsrsummary.pdf

PADD 1 CRUDE IMPORTS RISE TO HIGHEST SINCE DECEMBER 2014: EIA

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                                            Last Week    Week Before  Last Year

Domestic Production '000...... 9,214              9,221           9,177

http://ir.eia.gov/wpsr/overview.pdf

According to a report by the Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove, Saudi Arabia may have its work cut out for it as it will be far harder to kill many U.S.E&Ps than analysts originally thought.

The reason: a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.

The Eagle Ford's DeWitt County has the lowest break-even, at $22.52, followed by Reeves County wells targeting the Wolfcamp Formation, at $23.40. The diversity of breakevens highlights the hazard posed by looking for a single number, even within a play.

These counties together produced about 551,000 barrels of liquids a day in October. Taking into account drilled but uncompleted wells boosts the number of potential survivors to 19. The wide range of break-evens undermines efforts to come up  with a single threshold for U.S. shale producers.

The full list of breakevens by county is shown below:



 

To corroborate its model of break-even levels for oil producers in the Permian and Eagle Ford, Bloomberg used a Baker Hughes' horizontal rig counts in the Spraberry play Permian and Eagle Ford. Howard County, Texas, has the lowest average break-even, at a WTI price of $29.19 a barrel. Its rig counts have doubled since oil prices began collapsing in mid-2014. In Midland County, at $30, rig counts are up 56%. Counts in Irion and Reagan counties, with two of the highest break-evens targeting the play, have fallen more than 70%.

 

 

None of this would be feasible if average breakeven prices were anywhere close to the $50-60 assumed by the consensus.

But where Bloomberg's analysis gets outright disturbing, if only for Riyadh, is that once wells are completed, breakeven costs tumble to Saudi-like sub-$20 prices in some countries.

From Bloomberg:

Tapping drilled but uncompleted (DUC) horizontal oil wells drops break-even WTI oil prices to less than $20 a barrel in eight county-play combinations in the Permian and Eagle Ford. The analysis assumes that drilled wells are sunk costs and that drilling constitutes 30% of a well's total cost. The 55-variable model shows that the impact of removing drilling expenses varies significantly by county and play, with break-even reductions ranging from $7.24 to $21.51, or 28% to 42%.

http://www.zerohedge.com/news/2016-02-03/shale-shock-big-leg-lower-oil-coming-after-many-shale-plays-found-have-far-lower-bre

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Houston-based National Oilwell Varco on Wednesday posted a $1.52 billion net loss for the final three months of the year amid the ongoing oil crash.

The oilfield equipment and services giant saw its revenues drop 60 percent in the quarter, but NOV also recorded $1.63 billion in pre-tax impairment charges.

For the full year, NOV took a $767 million net loss, down from a $2.5 billion profit in 2014. NOV’s 2015 revenues dropped 33 percent from the year prior.

NOV Chairman, President and CEO Clay Williams said the company performed well given the “very tough market.”

“Tumbling oil prices brought capital austerity and sharply lower oilfield activity, which is intensifying as we enter 2016,” Williams said in a prepared statement, citing NOV’s solid cash generation and strong balance sheet. “We are well positioned to take advantage of the opportunities we expect to emerge during 2016.”

Several energy companies have waited to post large impairment charges in the fourth quarter to address the shrinking values of their assets and more.

Schlumberger posted a $1 billion fourth-quarter loss, while Halliburton recorded a smaller $28 million net loss.

In an analyst note, Tudor, Pickering, Holt & Co. called NOV’s earnings “much worse than we envisioned,” adding that the “most challenging quarter in some time reflects the harsh reality” of exploration and production companies slamming the brakes on spending.

On a per-share basis, NOV’s earnings were 40 cents a share after being adjusted for one-time costs. That’s down from $1.84 a share a year prior.

Williams said the “lower-for-longer” period of low oil prices will eventually push demand to grow and provide the foundation for an eventual recovery.

“We nevertheless recognize that the timing of the recovery remains uncertain and that we face additional headwinds in the year ahead,” Williams added. “We remain resolute in our focus on reducing costs, improving execution, doing more with less and, ultimately, emerging from the depths of this cycle well positioned for the upturn.”

Earlier this week, NOV said it plans to cut 129 Houston workers as the company closes its North Houston manufacturing facility near Greenspoint at Air Center Boulevard. The company said it will lay off workers in phases, beginning last week and lasting until June. NOV said some workers had been laid off with little advance notice, and that those employees had been provided additional pay and benefits.

In November, NOV said it was cutting 120 employees as it shuttered a plant in San Angelo. Williams has said the company will continue slashing costs wherever possible, including shuttering plants.

http://fuelfix.com/blog/2016/02/03/nov-records-1-5-billion-net-loss-for-the-fourth-quarter/?utm_source=twitterfeed&utm_medium=twitter#33445101=0

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Marathon Petroleum Corp. said its fourth-quarter earnings fell 77% as weak fuel prices resulted in an inventory markdown that weighed on results at its refinery and Speedway retail divisions.

Chief Executive Gary R. Heminger said in prepared remarks Wednesday that Marathon made progress on the company's objectives of "growing the more stable cash-flow segments of our business and enhancing our refining margins."

The Findlay, Ohio, company in early December combined its MarkWest Energy Partners LP acquisition with Marathon's MPLX LP pipeline master-limited partnership. The latest results include MarkWest's results as of Dec. 4, when the deal closed.

Mr. Heminger said Marathon's Speedway unit, which includes the former retail operations of Hess Corp., substantially completed planned conversions of its East Coast and Southeast retail locations to the Speedway brand well ahead of schedule.

Mr. Heminger said average selling prices and continued strong demand for gasoline supported crack spreads, an industry term for the difference between the wholesale price of gasoline and the price of crude oil.

The refining and marketing segment reported operating income of $207 million, sharply lower than the $1.02 billion reported a year earlier.

The company's Speedway business reported that operating earnings fell by slightly more than half to $135 million.

The pipeline business posted operating profit of $71 million, an increase of 22%, thanks to the addition of MarkWest.

Over all, Marathon Petroleum reported a profit of $187 million, or 35 cents a share, down from $798 million, or $1.43 a share, a year earlier. The latest period included 44 cents a share in inventory write-downs. Revenue slumped 30% to $15.68 billion.

Analysts polled by Thomson Reuters expected per-share profit of 69 cents and revenue of $16.35 billion.

http://www.marketwatch.com/story/marathon-petroleum-slumps-on-inventory-writedown-2016-02-03

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Gulfport Energy Corporation today reported year-end 2015 proved reserves, provided an operational update for the quarter and year ended December 31, 2015 and scheduled its fourth quarter and full-year 2015 financial and operational results conference call.  Key information includes the following:

• 
  
• Year-end 2015 total proved reserves grew to 1.7 Tcfe, as compared to 933.6 Bcfe at year-end 2014, an increase of 83% year-over-year.
• Year-end 2015 total proved developed reserves grew to 767.1 Bcfe, as compared to 453.8 Bcfe at year-end 2014, an increase of 69% year-over-year.
• Proved reserves by volume were 91% natural gas and 9% oil and natural gas liquids.
• Net production during the full-year of 2015 averaged 548.2 MMcfe per day, exceeding the high-end of Gulfport’s annual 2015 guidance of 541 MMcfe per day.
• Realized natural gas price before the impact of derivatives and including transportation costs averaged $2.08 per Mcf during 2015, a $0.58 per Mcf differential to the average trade month NYMEX settled price.
• Realized oil price before the impact of derivatives and including transportation costs averaged $42.29 per barrel, a $6.59 per barrel differential to the average WTI oil price during 2015.
• Realized natural gas liquids price, before the impact of derivatives and including transportation costs, averaged $13.18 per barrel, or $0.31 per gallon during 2015.
• Entered into a joint venture (“JV”) with a subsidiary of Rice Energy Inc. (NYSE: RICE), which venture completed a lateral that connects two existing dry gas gathering systems on which Gulfport currently flows the majority of its dry gas volumes.
• Secured an incremental 150,000 MMBtu per day of firm arrangements starting November 2016 through March 2017 at an average differential of $0.61 off NYMEX.
• Increased hedge position to approximately 480 MMcf per day of natural gas fixed price swaps during 2016 at an average fixed price of $3.29 per Mcf and 347 MMcf per day of natural gas fixed price swaps during 2017 at an average fixed price of $3.07 per Mcf.
• Year-end 2015 cash on hand totalled approximately $113.0 million and Gulfport’s revolving credit facility of $700 million was undrawn with outstanding letters of credit totalling $178.6 million.

http://www.ohio.com/blogs/drilling/ohio-utica-shale-1.291290/gulfport-energy-reports-boost-in-year-end-proved-reserves-1.659053

Suncor Energy Inc. will cut spending by about 10 percent this year after the oil-sands producer posted a surprise loss for the fourth quarter amid writedowns on the value of Canadian, Libyan and offshore assets.

Suncor lowered its capital spending plan to between C$6 billion ($4.4 billion) and C$6.5 billion from a November estimate of C$6.7 billion to C$7.3 billion, it said in a statement Wednesday. The reduction comes partly from deferring maintenance at its Firebag oil-sands operations to 2017 from this year.

The Canadian oil giant has lowered costs and delayed projects to weather collapsing prices that are making many oil-sands operations unprofitable. The 2016 spending cuts come after the company eliminated more than 1,000 jobs and slashed its budget last year.

“We have surpassed the reliability and cost reduction targets we established in early 2015,” Chief Executive Officer Steve Williams said in the statement.

Missed Estimates

The company reported a fourth-quarter loss of C$2 billion, or C$1.38 a share, compared with net income of C$84 million, or 6 cents, a year earlier. Excluding one-time items, per-share profit fell short of the 8 Canadian-cent average of 15 analysts’ estimates compiled by Bloomberg.

Suncor reported after-tax impairments of C$1.6 billion, including charges of C$798 million for some offshore assets because of lower crude prices, C$415 million for its Libyan assets and C$290 million for the Joslyn oil-sands venture. Its unrealized foreign exchange loss on U.S. dollar denominated debt was C$382 million.

Even with crude prices near 12-year lows, Suncor is pressing ahead with the C$13 billion Fort Hills project, with plans to spend C$1.6 billion this year to begin production at the end of 2017. The company is also taking advantage of the oil industry downturn to expand through deals including the C$4.2 billion takeover of Canadian Oil Sands Ltd. and the purchase of a bigger stake in a venture with France’s Total SA.

West Texas Intermediate, the U.S. benchmark, averaged $42.16 in the quarter compared with $73.20 in the year-earlier period. The crude is still hovering just above $30 a barrel.

Suncor estimates its oil-sands operating costs per barrel, excluding the Syncrude venture, will be C$27 to C$30 this year, while WTI will average $39. Production this year will average between 525,000 and 565,000 barrels a day, the company said.

The Canadian Oil Sands acquisition, pending shareholder approval, will increase Suncor’s stake in the Syncrude venture that processes bitumen into light oil in northern Alberta to 49 percent, from 12 percent. Currently, the largest owner is Exxon Mobil Corp.-affiliate Imperial Oil Ltd., which holds 25 percent and operates Syncrude.

http://www.bloomberg.com/news/articles/2016-02-04/suncor-reports-surprise-loss-on-charges-cuts-spending-for-2016

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