Thursday, July 9, 2015

Ford To Shift Small Car Production Overseas; Incredibly Good News For The Bakken: California Oil Production Will Keep Slip Sliding Way -- Tea Leaves -- July 9, 2015

How much oil is there in the Bakken (and the Eagle Ford, and the Permian)? Enough to end the small car market in the United States. The Wall Street Journal is reporting: Ford to Shift Work Abroad. Car maker to end U.S. production of Focus sedans as demand for small cars fades.
The auto industry’s attempt to build small cars profitably in the U.S. has hit a pothole.
Ford Motor Co. said a Michigan factory that assembles its small Ford Focus and C-Max wagon will end production of those vehicles in 2018 in a new setback to efforts to create a market for small cars made in the U.S. Production of the Focus will be moved outside the U.S.
The move could put pressure on the United Auto Workers union to temper demands for wage increases in upcoming contract negotiations. Ford, General Motors Co. and Fiat Chrysler Automobiles NV, although profitable, are struggling to keep pace with lower-cost Asian auto makers that now have the added advantage of weaker currencies compared with the U.S. dollar.
Small cars like the Focus deliver far lower profit margins than the pickup trucks and sport-utility vehicles the Motor City is best known for, but they are essential to helping car makers meet stringent fuel economy mandates.
Auto makers won concessions from the UAW before and after the financial crisis to dramatically lower labor costs. Those agreements helped usher in a return of U.S. small car production. GM now makes the subcompact Chevrolet Sonic in Lake Orion, MI, and Ford its Focus in Wayne, MI.
There are several story lines with regard to stringent fuel economy mandates and US car manufacturers. 2018 is a key year; larger vehicles get a better mileage mandate break; and, Tesla.

Great News For The Bakken

Two stories out today and a look at California crude oil production suggests tough times for the oil and gas industry in California.

First, the EIA data regarding California crude oil production:

In 2014, the data suggests less than 600,000 bopd. 

The two articles. One was a Bloomberg article reported over at Rigzone.

The second was a front-page Los Angeles Times internet article. I will have a lot of fun with the Los Angeles Times article if I get around to it, but I will probably ignore it for now, except for two data points.

First, from the article:
Seth Shonkoff, lead author on the public health sections of the report, said he was surprised to learn during his research that recycled wastewater from oil fields was being used on crops.
Really? Anyone paying attention knew this; I've been reading about it for the past two years and I'm not even "in" the industry; can't remember if I blogged it. I wouldn't think of blogging it because irrigating with produced water is so common as to be not newsworthy. And that was the lead author who was unaware that produced water was being used for irrigation. I'm sure I linked this story or a similar story on the blog a long time ago: KQED is reporting:
With California’s reservoirs running low, many Central Valley farmers are struggling to keep their trees and crops alive this year.
In the southern San Joaquin Valley, some are getting extra water from an unlikely source: the oil industry.
California is the third largest oil-producing state in the country, extracting roughly 200 million barrels a year. But in the process of getting oil, companies also produce massive volumes of water, found naturally in the same underground formations.
To produce one barrel of oil, we produce about nine barrels of water,” says Chevron’s Thep Smith, walking around the company’s Kern River oil field, east of Bakersfield.
Just wait until the state bans irrigation with produced water. Wow. 

Jane Long, the report's co-lead, said researchers did not find strong evidence of fracking fluids in irrigation water but added: “What we did find was that there was not any control in place to prevent it from happening.”
Ms Long also noted that the researchers did not find any elephant dung in California water, but they also found that there were no controls in place to prevent elephant dung from entering the California water supply.
Okay, I made that part about elephant dung up.

The bottom line is that crude oil production in California is not going to get easier based on a reading of the swirling tea leaves.

Too Big To Exit

Back on June 10, 2015, on the blog: Greece. I always said that Merkel would cave. Now Drudge is linking a story that says "Merkel blinks."

Earlier today I was going to post the note that The (London) Telegraph is doing the best job of reporting the Greek tragedy but never got around to it; actually I had the time, just not particularly interested. But I digress. 

The Telegraph is reporting:
This is the first time Europe's institutions have acknowledged clearly that Greece’s public debt – 180pc of GDP – can never be repaid and that no lasting solution can be found until the boil is lanced.

German Chancellor Angela Merkel said “a classic haircut” is out of the question, but tacitly opened the door to other forms of debt restructuring, conceding that it had already been done in 2012 by stretching out maturities.
So, sometime tomorrow, or over the weekend, or next week, Germany et al will send Greece $8.1 billion so Greece can start paying Germany et al some of the money they are owed. It will be interesting to see if Greece, if it gets the money, will pay back any of the money it owes the IMF.

Two more Wall Street Journal articles on the Greek tragedy:
Even when a country's debt is too high to ever repayable, it's still possible to go on living on other people's money. Boy, the Germans and the French must really love the Greeks. I'm beginning to wonder if money even matters any more.

New Post-Boom Low For Active Rigs In North Dakota: 73; Eleven (11) New Permits; Eight (8) High IP Wells Reported -- July 9, 2015

Active rigs:

Active Rigs73189185213170

As mentioned earlier, there were "official" reports that the post-boom low in North Dakota was 72 active rigs; maybe. If so, I missed that. Regardless, it may be moot -- we hit 73 today. My data base shows 74 as the previous low -- this morning.

Two (2) wells coming off the confidential list Friday:
  • 29859, 15, Slawson, Howitzer Federal 5 SLTFH, Big Bend, 4 sections, 9 stages, 300K, t3/15; cum --; obviously a problem here; will track;
  • 29980, SI/NC, BR, CCU Dakotan 1-7-17TFH, 
Eleven (11) new permits --
  • Operators: QEP (4), Statoil (2), Crescent Point (2), Whiting (2), EOG
    Fields: Grail (McKenzie), Banks (McKenzie), Colgan (Divide), Bell (Stark), Parshall (Mountrail)
    Comments: It's been a long time since I've seen a new permit in Stark County
SM Energy canceled two permits for two Schell wells in Divide County.

Eight (8) producing wells completed:
  • 25502, 3,161, HRC, Fort Berthold 148-94-17C-8-5H, Eagle Nest, t6/15; cum --
  • 24417, 2,174, HRC, Fort Berthold 148-94-17C-08-4H, Eagle Nest, t6/15; cum --
  • 24418, 2,054, HRC, Fort Berthold 148-94-17C-08-3H, Eagle Nest, t6/15; cum --
  • 28774, 1,409, XTO, Ranger 21X-18F, Tobacco Garden, t6/15; cum --
  • 28773, 2,702, XTO, Ranger 21X-18B, Tobacco Garden, t6/15; cum --
  • 28379, 1,336, XTO, McCoy 44X-23G2, Siverston, t5/15; cum 5K 5/15 (10 days)
  • 28380, 1,935, XTO, McCoy 44X-23D, Siverston, t4/15; cum 17K 5/15; choked back,
  • 28381, 1,832, XTO, McCoy 44X023H, Siverston, t4/15; cum 10K 5/15; ten days production in April; no production at all in May, 2015

Williston Wire -- July 9, 2015; Williston Now Has North Dakota's Largest Walk-In Humidor

Construction of Williston's new airport is expected to begin in spring, 2016. Enplanements in Williston continue to soar; 9,800 passengers boarded in Williston in June, 2015. Sloulin Field International Airport Director Steven Kjergaard says the month - to - month increase  is closer to ten-percent, rather than the twenty-percent it had maintained for the past few years - but he says they are still moving in the right direction. The pending airport relocation project could mean even higher enplanements. Relocation plans are moving forward for Sloulin Field International Airport.

The Great Plains Smoke Shop is now open at the Sand Creek Town Centre in Williston. The new store features North Dakota's largest walk-in humidor and a wide selection of premium hand-rolled cigars, pipes and pipe tobacco. 

The US Postal Service celebrated the one year anniversary at its Badlands Postal Facility recently. The satellite branch of hte Williston Post Office is located in the Badlands Town Center near Walmart.

New restaurant in Wildrose; only restaurant in 30-mile radius. Founded by Paul Urias; moved to North Dakota seven years ago from Fresno, CA, where he owned and operated a restaurant called "The Tamale Shop." The new restaurant is in the "old" Wildrose High School which closed in 2006 due to lack of enough students to keep it open.

Huge Ray reconstruction / infrastructure project is in full swing.

Meanwhile Elsewhere


July 11, 2015: just days after posting the note below, The Los Angeles Times had a front page lead story on the surge in heroin deaths.
Frieden made his comments as he announced that heroin use had increased 62% and related deaths had nearly quadrupled since 2002.
The biggest increases were among groups associated with a parallel rise in the use of prescription painkillers, such as OxyContin and Vicodin. Today's heroin user is increasingly likely to be wealthy, privately insured and between the ages of 18 and 25, according to the study by researchers at the CDC and the U.S. Food and Drug Administration.
It is a phenomenon familiar to people on the front lines of the crisis from Simi Valley to San Diego.
Original Post
USA Today is reporting:
After seeing years of decline in violent crime, several major American cities experienced a dramatic surge in homicides during the first half of this year.
Milwaukee, which had one of its lowest annual homicide totals in city history last year, has recorded 80 murders so far this year, more than double the 39 it tallied at the same point last year.
Milwaukee police chief Edward Flynn said the mounting homicide toll in his city of 600,000 is being driven by Wisconsin's "absurdly weak" gun laws (carrying a concealed weapon without a state-issued concealed carry is a misdemeanor in the Badger State), a subculture within the city that affirms the use of deadly violence to achieve status, and growing distrust of police in some parts of the city.
Milwaukee is not alone.
Baltimore, New Orleans and St. Louis have also seen the number of murders jump 33% or more in 2015. Meanwhile, Chicago, the nation's third largest city, has seen the homicide toll climb by 19% and the number of shooting incidents increase in the city by 21% during the first half of the year.
But not to worry. An authority suggests this may simply be an anomalous blip:
Alfred Blumstein, a professor of urban systems and operations research at Carnegie Mellon University in Pittsburgh, said the current surge in murders in some big cities could amount to no more than a blip.
Closer to home, the number of murders in Fargo, North Dakota's tripled in 2013 compared to the number just two years earlier (3 vs 1).

I couldn't find the final homicide number for Fargo for 2014, but as of September, 2014, it was five times higher than 2011 with 5 homicides.
Unsettling numbers are coming out of Fargo-Moorhead about homicide.

The murder death toll in the area is at an all-time high.
Usually, our area sees one murder a year, but the past twelve months have brought five times that many.
And, not unexpectedly,
Some downtown think it's population growth; others bring up the Bakken boom.
I'm trying to connect this murder story with the Bakken. If the link is broken, the key statement:
...the convicted felon with a string of crimes stretching back 15 years had first been identified by police as a person of interest in connection with a homicide on Monday.

Blog Jobs -- July 9, 2015

This is always the most interesting data point of the week. More precisely, the data point is less interesting than the spin. So, let's see the spin today. From Reuters, the headline, not much spin: U.S. jobless claims rise to highest level since February:
New applications for U.S. unemployment insurance benefits rose last week to their highest level since February, suggesting some slowdown in the labor market recovery.
Initial claims for state unemployment benefits rose 15,000 to a seasonally adjusted 297,000 for the week that ended July 4, the U.S. Department of Labor said on Thursday.
You don't have to read far to get the spin. The very next paragraph:
Even with the rise in claims, the latest report marks the 18th consecutive week of new filings below 300,000, which is considered consistent with a firming labor market.  
The previous week's report was revised upward 1,000 to 282,000. 

But the story is actually worse; economists had expected new applications to fall to 275,000 last week. So, again, not only did applications fall as expected, but they surged. A jump of 15,000 new applications (as well as an upward revision of the previous week's number) is not trivial, especially after a gazillion dollars in stimulus and six years into the Obama recovery.

I assume the layoffs in the oil and gas industry are starting to be seen. 

More from the linked article:
Continued claims - the number of people still claiming jobless benefits after an initial week of aid - rose 69,000 to 2.334 million in the week ended June 27.
Oh, this is interesting. When did this change? When I was growing up, 4% unemployment was always considered "full employment." It appears like many definitions that have been changed under President Obama, the definition of full employment has also changed. From the linked article (I cannot make this stuff up): 
The labor market has been tightening, with the unemployment rate not too far from the 5.0 percent to 5.2 percent range that most Federal Reserve officials consider consistent with full employment. 
Regardless of changing definitions by the Obama administration, I maintain that an unemployment rate of 8% today is equivalent to 4% when I was growing up, with the safety net, the underground economy, and the technology shift. 

Finally, the standard boiler plate continues:
The four-week moving average of claims, which smoothes (sic) out week-to-week fluctuations and is therefore considered a better gauge of the labor market, rose 4,500 to 279,500 last week.
With regard to "smoothes" -- check out this site:

I assume over time "aks" will be the accepted form of "ask." 

A Trifecta

For those paying attention, these are the initial claims numbers for the past three weeks, during the summer hiring season, after a gazillion dollars in stimulus, and six years into the Obama recovery.

July 9, 2015: claims surge 15,000 to 297,000 (previous week was revised upward by 1,000); four-week average rose 4,500 to 279,500.  

July 2, 2015: claims surge 10,000 to 281,000; a 5-week high; four-week average increases by 1,000 to 274,750.

June 25, 2015: claims rise 3,000 to 271,000; four-week average falls 3,250 to 273,750.

Were The Goalposts Moved?

Back to "full employment." Wiki is not particularly helpful to determine whether President Obama has moved the goal posts. Wiki suggests that anything between 4% and 6.4% for the US. In other countries, unemployment can be as high as 13% and still considered full employment.

Investopedia says anything from 2 - 7%.

From a PBS site back in 2013:
Question: No one is satisfied with current numbers for employment or unemployment levels. My question: What is the metric (level) that we’re supposed to be at? In the 1960’s, 4 percent unemployment was considered to be full employment. Over the past years, that number seems to be accepted as being higher: 4 percent, 5 percent, 5.5 percent or even 6 percent.
"Over the past years" -- remember, this was five years into the Obama presidency -- the unemployment percent for full employment seems to have gradually moved to 6 percent from 4 percent.

I assume we are about ready to see headlines -- perhaps as early as next week if initial claims fall -- that the US is at full employment.

Best Description Of Hillary Yet

From The Daily Beast:
The truth is Hillary Clinton has supported every US war since Vietnam.
She supported not only DOMA, which her husband signed, but a travel ban on those who were HIV positive.
She supported welfare cuts (remember her husbands efforts towards “ending welfare as we know it”?). She supports the death penalty and campaigned in her husband’s place during the 1992 New Hampshire primary when he left to oversee the execution of an African American man whose suicide attempt left him brain damaged.
And if “mass incarceration” is a problem today, keep in mind she has long advocated for the criminal justice policies that called for locking up more people for longer periods. She supports—and, as Secretary of State, participated in—the US policy of targeted assassinations, including when the targets were American citizens.
In a political environment in which income inequality is a rallying cry, she makes $300K plus expenses an hour. In fact, she would be the wealthiest person elected president in the modern era.

Natural Gas Fill Rate And Gasoline Demand; EIA's Gasoline Demand Graph Appears Not To Have Been Updated -- July 9, 2015

Natural gas fill rate: 91.
The fill rate is just above the 5-year average. In the East Region, stocks were 77 Bcf below the 5-year average following net injections of 69 Bcf.
Gasoline demand: although the EIA site says the data was released July 8,2015, the graph from last week has not been updated. I use the graph at the very bottom of the page. I don't know if the data itself has been updated. It says finished motor gasoline was 9.532 million bbls/day in the week ending 7/3/15. That looks to be identical to what was reported last week, but I did not save that exact number, just posting the graph.

I always thought the the graph and the spreadsheet matched, but obviously they don't; this is today's screen shot which the EIA said was released on July 8, 2015:

[Note, July 16, 2015: I just noticed a mistake. I circled the "week ending" numbers but the graph is showing the 4-week average; however the graph is still not updated from the week before.]

The spreadsheet above links to the next spreadsheet

 I am obviously misreading something; I can't explain it. More to follow I'm sure. Maybe the EIA had the same technical glitch that the NYSE, United Airlines, Wall Street Journal and MDU had yesterday.

Post-Boom Bakken Active Rig Count Hits New Low; Thursday, July 9, 2015

Active rigs:

Active Rigs74189185213170

I probably missed it but I think I saw official reports state the post-boom low in active rigs in North Dakota was 72, my data base shows 75 as the previous low. The "74" today represents, at least for me, a new record low for the post-boom Bakken.

RBN Energy: natural gas demand response is emerging.
CME/NYMEX Henry Hub natural gas futures prices for August delivery continue to trail $1.50/MMBtu behind year-ago levels and natural gas production volumes show little sign of softening. Gas demand is rallying to record-setting levels and the balance is tightening. But there is still a long way to go before the storage inventory surplus is reined in. Today we revisit supply/demand balance and its impact on storage this summer.
This is our latest update on the fundamental factors influencing the natural gas market – especially the supply/demand balance. At the end of April in My Sweet Hoard we recapped the storage picture going into the start of summer 2015, which indicated the possibility of an end-of-season inventory balance substantially above last year.  From the vantage point of April, the looming questions presented by this year-over-year surplus  were whether production would slow, how big would the demand response be to the supply glut and resulting lower prices, and how would the weather wild-card factor in.  
In the previous episode of Tightening Up in Mid-May we reviewed supply/demand balance data from PointLogic Energy’s Daily Market Report to highlight fundamentals contributing to the storage inventory situation as of mid-May. NYMEX Henry Hub price activity at the time signaled some level of confidence in the market that a production slowdown and demand response from the power and industrial sectors would eventually resolve a potential year-over-year storage surplus. Now with June, one of the hotter months, under our belt, we revisit that data to see whether changes in supply or demand have moved the needle.
It will be interesting to see the natural gas fill rate later this morning.