California: Bovine Fart Backpacks -- December 12, 2016

Futures? WTI up over 4.4% overnight -- $53.77 right now. Dow futures up 20 points; S&P down 0.02%. At  opening: CVX surges; EOG surges; SRE, not so much; COP surges; even BRK-B is up a bit. 

Peak oil? This may be the most important story all week. From Bloomberg, China is cutting about 300,000 bopd this year, more than the combined cuts announced over the weekend by non-OPEC countries excluding Russia. China's decline in production will continue into 2017 (next year) at about 200,000 bopd. By the way, this was reported by The WSJ back on August 25, 2016:

China’s struggling oil sector has entered a challenging new phase: long-term decline of its domestic production.

Oil production in China likely peaked last year at around 4.3 million barrels a day, according to new data and interviews with industry executives. The development has significant implications globally, including the potential for higher crude prices over time as China steps up imports to meet rising demand at home.

“The turning point that we’ve been searching for, for years, is happening now,” said Kang Wu, vice chairman for Asia at energy consultancy FGE. As an oil producer, he said, “China is entering long-term stagnation and decline.”

I think this is why some analysts suggest there could actually be a "deficit" in global oil production in 2017.

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All that cash: judge rejects Pennsylvania recount. 

The JV Team update. ISIS re-takes Palmyra, Syria.

Filloon's oil update: the OPEC/non-OPEC deal and 2017 investment opportunities in the oil patch.  This was posted earlier; note the comments.

Saudi cutting more than expected: another contributor at SeekingAlpha. 

For those who like graphs: natural gas short sellers left in the cold. The headline is all you need to know. I can't imagine 1 out of 100 reading this. Seriously. From Richard Zeits over at SeekingAlpa.

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Climate change reality in California. From The Los Angeles Times, the state may have not thought this through very well (or not at all). The "state" has mandated a 40% cut in CO2 emissions from 1990 basis. No one really knows what that means. It will require the state to "go back" to sometime in the 1960s with regard to transportation and industry.

California will be the only state with such an ambitious agenda. They will go it alone. The 40% cut in emissions will have a 1% effect on global emissions. 

With regard to the dairy industry and cow farting:

At a heated meeting in June, dairy officials pleaded with the Air Resources Board that they already reduced methane emissions. Air board scientist Ryan McCarthy suggested that new technology could help, and the discussion turned to an experimental system from Argentina that would capture gas in a backpack on each cow through a hose inserted into their digestive system.

They will use space-suit technology from the US moon landings in the 1970s. Bovine fart backpacks.

I can't make this stuff up.

The article suggests that this was a shot across the bow, a warning shot, that the legislature's top priority this year and next: re-do their plan.

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Active rigs:

	12/12/2016	12/12/2015	12/12/2014	12/12/2013	12/12/2012
Active Rigs	40	65	181	191	184

RBN Energy: Mexico's increasing reliance on US motor gasoline and diesel.

Mexico’s consumption of motor fuels is rising, its production of gasoline and diesel continues to fall, and U.S. refineries and midstream companies are racing to fill the widening gap. The export volumes are impressive: deliveries of finished motor gasoline from the U.S. to Mexico averaged 328 Mb/d in the third quarter of 2016, up 41% from the same period last year, and exports of low-sulfur diesel were up 29% to 194 Mb/d. And there’s good reason to believe that U.S.-to-Mexico volumes will keep growing. Today we look at recent trends in gasoline and diesel production and consumption south of the border, and at ongoing efforts to enable more U.S.-sourced gasoline and diesel to reach key Mexican markets by rail and pipeline.

Mexico is still among the world’s largest energy producers, but its output of crude oil, natural gas and natural gas liquids (NGLs) has been falling for several years, as has the country’s ability to meet its own, internal need for key fuels: natural gas, liquefied petroleum gas (LPG), gasoline and diesel among them. This has caused a lot of angst for the Mexican government and for Petróleos Mexicanos (Pemex), the state-owned energy company, to the point that the country’s entire energy sector is being reformed, starting with a constitutional amendment in December 2013 to allow more foreign and private sector investment, and more competition. 

Most relevant to our discussion today is the fact that Pemex until April 2016 was the only entity that could import gasoline and diesel to Mexico, and that until early 2017 independent/third-party importers still cannot use Pemex’s existing pipeline distribution network (more on this in a bit). In other words, the Mexican motor fuels market is gradually opening up.

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The Market

Now that Trump has been elected president (well, maybe), the Fed is now free to "hike" the Fed rate.

Boeing seals $17 billion Iran deal; 80 jetliners. No link; story everywhere.

For the archives: a very, very bullish sign.