NEW YORK (Bloomberg) – U.S. oil producers are taking advantage of the rally following the killing of a top Iranian general to lock in prices for more of their 2020 and 2021 output. The hedging may extend a lifeline to producers, allowing them to maintain higher output at a time when analysts are expecting growth to slow. That potentially undercuts calls for a slow winding down of the shale boom, driven by a combination of firms buckling under investor demands for capital discipline, lower forward prices and engineering issues.

Producers operating in some of the largest U.S. shale basins have added hedges since Friday, according to people familiar with the trades.

The firms used a combination of options strategies, including spreads and collars, to lock in the highest selling prices in months as oil pushed above $70 a barrel in London for the first time since September.

The 13 largest producers tracked by BloombergNEF had hedged an average of 13% of their 2020 output as of Sept. 30, analysts said in a note last month. Half of the 12 largest had no hedges in place. NN: That number by my estimation is now over 40%

The Energy Information Administration said in December that U.S. 2020 oil production will grow by 930,000 barrels a day this year, down from the 1 million barrels in its previous forecast. The average price for U.S. crude for all of 2020 closed above $60 a barrel on Friday, the highest level since May 2019. Many firms missed the September rally, as prices quickly came back down following a quick spike after unprecedented attacks on Saudi Arabia’s oil infrastructure. A number of large trades in the financial options market were booked on Friday, notably some average-price options in the form of three-way collars on the New York Mercantile Exchange for 2020 and 2021, according to data compiled by Bloomberg. Those strategies involve a producer buying put spreads — which offer protection against a drop in prices — while selling calls to offset the cost of the insurance. That will limit how much additional profit the producer can make if prices continue higher. It’s not just U.S. companies that have been using the recent price rally to increase their hedging levels, as those in the North Sea have also been active, traders said. Brent for 2020 has rallied toward $65 since the start of the year, enabling producers to potentially lock in the highest prices in almost eight months. Nick Note: I guess oil producers tithed enough to the TV preacher, , sacrificed virgins, booked good Karma,  the Haitian witch doctor and meditated at the Ashram. BECAUSE this is a life line. Mr Fracking banker asshole… Get in your (leased)  Beamer and head out to the fracking company office and offer him whiskey, lap dance coupons, loan extensions and have him hedge the shit out all his production for the next 2 years. And don’t forget to light a candle to the patron  saint of oil workers Honorius of Amiens.  Crude Light NY il under $50 here we come agan

NEW YORK (Bloomberg) – Five new oil pipelines are set to open in the Permian Basin through 2021, expanding a gap between production and takeaway capacity that’s already spurring midstream rate cuts and could mean cutthroat competition ahead.

Producers in the West Texas and New Mexico oilfield are pumping about 4.72 million barrels a day, according to Rystad Energy AS. That compares with nearly 6 million barrels of pipeline capacity that could rise by about 3.5 million barrels in the next two years as planned new conduits come online.

Most of those planned projects were announced when the Permian was posting annual growth rates in excess of 1 million barrels a day. Now, some analysts see yearly growth slowing to as little as 650,000 barrels a day, with older wells producing less and oil companies preparing to curb spending this year to boost investor returns.

Competition will heat up particularly among pipeline companies seeking to renew long-term shipper contracts that are set to expire, including those seeking to proceed with new pipeline projects, said Sandy Fielden, director of research for Morningstar Inc. “There is a chance that some of the projects would get canceled or consolidated and that would depend on shipper commitment.”

Adding to this, the difference between the price of crude on the coast compared with Midland in the Permian has plummeted in the last year, making it more difficult for shippers to make money after paying the pipeline fees.

Operators of legacy pipes in the oil patch already started cutting tariffs last year to retain or lure shippers to keep their systems fully loaded. In August, Energy Transfer Partners LP cut rates for users on portions of their Permian Express system, while Magellan Midstream LP issued incentive rates for large-volume shippers on its Bridgetex pipeline. Epic Pipeline Co LP halved its transportation rate prior to the line coming into service.

Oil producers are warning that they are preparing to curb spending this year to boost investor returns. “The Permian is definitely slowing down,” said Elisabeth Murphy, an analyst at ESAI Energy Llc. Declines from legacy wells are outstripping the new wells, and there aren’t enough rigs to offset the decline in the legacy wells, she said.

“New pipe start ups like Cactus II starting up and Epic in the summer have put us over the top on capacity,” said John Auers, executive vice president at energy consultant Turner Mason & Co. “Now, there is surplus capacity out of the Permian.”

For pipes still at proposal stage, it doesn’t help that the spread between Midland, Texas, and Houston which has access to export markets, has narrowed from over $10 a barrel a year ago to around $2.50. This would mean transportation costs from the Permian bound for the Gulf would have to be even cheaper, straining profit margins.

Ultimately, only projects initiated by companies with well-established infrastructure will stand a chance to succeed, said Fielden. Connectivity on their existing systems would be plus points that will usher their projects through to completion, he added.

Still, some companies are forging ahead with pipeline expansions because of industry support. Enterprise Products Partners LP plans to push ahead with adding nearly 1 million barrels a day of new connectivity from Midland, Texas, to its ECHO terminal in southeast Texas, ready in 2021, according to Tony Chovanec, senior vice president for fundamentals and commodity risk assessment.

“It’s no surprise to anyone that next year and probably for the next couple of years, it’s going to be highly competitive, which will create volatility in earnings,” Magellan Chief Executive Officer Mike Mears said on the company’s earnings call in October.

CALGARY (Bloomberg) – Alberta’s loosening of crude-production limits has renewed risks of a price collapse similar to the one experienced in 2018. Oil sands benchmark Western Canadian Select is trading near the weakest discount to West Texas Intermediate in more than a month, data compiled by Bloomberg show. At the same time, the discount for Edmonton Mixed Sweet crude, a benchmark for Canada’s conventional producers and shale frackers, grew to the widest in more than a year.

Those differentials suggest that Canadian oil is at high risk of a “blowout,” according to a report by Credit Suisse analyst Manav Gupta.

Alberta’s government has loosened output limits imposed at the start of 2019 to counter a glut caused by a lack of pipeline capacity and too much oil production. Before the cuts, Western Canadian Select’s discount to WTI has grown as wide as $50 a barrel. With those limits winding down, production is on the rise, prompting oil-pipeline operator Enbridge Inc. to increase rationing on its heavy oil line in December and January. A temporary shutdown of a major export pipeline and a rail strike in November contributed to record-high inventories in Western Canadian that month, according to Genscape data. Should Western Canadian Select’s discount to WTI widen to more than $25 a barrel, the “Alberta government might be forced to step back in and raise the volumes on mandated cuts to control a bloating inventory situation,” Gupta said. A “wider WCS spread is a near-term tailwind.” Nick Note: The oil supplies keep rolling in…. We are having fun NOW!

Iran launched missiles at the American Ain al-Assad airbase in retaliation over the US assassination of the Iranian general Qassam Soleimani

Rockets were launched at the al-Asad air base in western Iraq and Erbil in the north of the country.

Iran crisis: Donald Trump declares Iran has ‘stood down’ as he backtracks on war threats The country’s Islamic Revolutionary Guards Corps has confirmed it was behind the strikes which came after military commander general Soleimani was killed by a Reaper drone last Friday at Baghdad airport. The IRGS has claimed the missile attacks are the “first step” and chillingly warned it will “not spare Americans” in an interview on television in Iran.

US President Donald Trump said an assessment of damage caused by the strikes was continuing and that he would make a statement this morning. “All is well!” Trump said on Twitter. He added: “Missiles launched from Iran at two military bases located in Iraq.

“Assessment of casualties & damages taking place now. So far, so good! “We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.” In a televised speech today, Trump said: “Our great American forces are prepared for anything.

“Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world. “No American or Iraqi lives were lost because of the precuations taken, the dispersal forces, and an early warning system, that worked very well.” Trump added that there had been ‘minimal damage’ caused to the bases.

The President described Soleimani as the ‘world’s top terrorist’ and blamed him for strikes on civilian targets and killing thousands of US troops. He also repeated his claim that the Iranian general was behind the recent assault on the US embassy in Baghdad. His assassination prevented him from carrying out further planned attacks, Trump added.