The Jim Bakker Show

Slowing gasoline price rises keep U.S. inflation in check

A woman shops in the Health & Beauty section of a Whole Foods in Upper St. Clair, Pennsylvania, U.S., February 15, 2018. Picture taken February 15, 2018. REUTERS/Maranie Staab

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices rose marginally in May amid a slowdown in increases in the cost of gasoline and the underlying trend continued to suggest moderate inflation in the economy.

The Labor Department’s inflation report was published ahead of the start of the Federal Reserve’s two-day policy meeting on Tuesday. Steadily rising inflation and a tightening labor market are expected to encourage the U.S. central bank to raise interest rates for a second time this year on Wednesday.

The Consumer Price Index increased 0.2 percent last month, also as food prices were unchanged. That followed a similar gain in the CPI in April. In the 12 months through May, the CPI increased 2.8 percent, the biggest advance since February 2012, after rising 2.5 percent in April.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, supported by a rebound in new motor vehicle prices and a pickup in the cost of healthcare, after edging up 0.1 percent in April. That lifted the year-on-year increase in the so-called core CPI to 2.2 percent, the largest rise since February 2017, from 2.1 percent in April.

Annual inflation measures are rising as last year’s weak readings fall from the calculation. Last month’s increase in both the CPI and core CPI was in line with economists’ expectations.

The Fed tracks a different inflation measure, which is just below its 2 percent target. Economists are divided on whether policymakers will signal one or two more rate hikes in their statement accompanying the rate decision on Wednesday.

The dollar held gains versus a basket of currencies immediately after the data before falling to trade slightly lower. U.S. Treasury yields were trading lower while U.S. stock index futures were slightly higher.

FOOD PRICES

The Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, rose 1.8 percent on a year-on-year basis in April, matching March’s increase.

Economists expect the core PCE price index will breach its 2 percent target this year. Fed officials have indicated they would not be too concerned with inflation overshooting the target.

Last month, gasoline prices increased 1.7 percent after surging 3.0 percent in April. Food prices were unchanged in May after rising 0.3 percent in the prior month. Food consumed at home fell 0.2 percent amid declines in the cost of meat, eggs, fruits and vegetables.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent in May after a similar gain in April.

Healthcare costs gained 0.2 percent last month after nudging up 0.1 percent in April. Prices for new motor vehicles rose 0.3 percent after sliding 0.5 percent in April.

Prices for used cars and trucks fell 0.9 percent after tumbling 1.6 percent in April. Airline fares declined 1.9 percent in May after dropping 2.7 percent in the prior month. Prices for apparel and recreation were unchanged in May.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Scientists puzzled by exotic distant galaxy lacking dark matter

The galaxy named NGC 1052-DF2, a large fuzzy-looking galaxy so diffused that astronomers call it a 'see-through' galaxy because its missing most, if not all of its dark matter, is shown in this photo obtained from NASA on March 28, 2018. NASA, ESA, and P. van Dokkum (Yale University)/Handout via REUTERS

By Will Dunham

WASHINGTON (Reuters) – Astronomers have detected for the first time a galaxy that is devoid of dark matter, the plentiful but enigmatic material that does not emit light or energy and had been considered a fundamental part of all galaxies including our own Milky Way.

The discovery, announced on Wednesday, is forcing scientists to rethink their ideas about the formation of galaxies.

“We didn’t expect that this could happen,” said Yale University astronomer Pieter van Dokkum, lead author of the research published in the journal Nature.

Paradoxically, the discovery of a galaxy without dark matter may actually confirm that the stuff actually exists by contradicting hypotheses advanced by dark matter doubters.

Van Dokkum said the galaxy, called NGC1052-DF2 and located about 65 million light years away from Earth, also appears to be devoid of gas and is relatively sparsely populated by stars.

It is about the same size as the Milky Way, but has roughly 250 times fewer stars: 400 million compared to the Milky Way’s 100 billion stars. It is classified as an ultra-diffuse galaxy, a kind first recognized in 2015.

Dark matter, which is invisible, is thought to comprise about a quarter of the universe’s combined mass and energy and about 80 percent of its total mass, but has not been directly observed. Scientists believe it exists based on gravitational effects it seems to exert on galaxies.

The universe’s ordinary matter includes things like gas, stars, black holes and planets, not to mention shoes, umbrellas, platypuses and whatever else you might see on Earth.

“Dark matter is not something that galaxies can sort of swap in or out of, like it’s kind of an optional thing that galaxies sometimes have and sometimes don’t,” van Dokkum said.

“We really thought that this is the essence of what a galaxy is, that galaxies are built from, initially, a bunch of dark matter and that all the stars and all the planets and everything else is just a little frost on top,” van Dokkum added.

The scientists spotted NGC1052-DF2 using the Dragonfly Telephoto Array, a telescope in New Mexico. They do not know how it formed, but have some hypotheses, including the possibility that a cataclysm within NGC1052-DF2 swept away all its gas and dark matter or that a massive nearby galaxy played havoc with it.

Van Dokkum said NGC1052-DF2 is so sparse that “it is literally a see-through galaxy.”

(Reporting by Will Dunham; Editing by Sandra Maler)

U.S. warns public about attacks on energy, industrial firms

By Jim Finkle

(Reuters) – The U.S government issued a rare public warning about hacking campaigns targeting energy and industrial firms, the latest evidence that cyber attacks present an increasing threat to the power industry and other public infrastructure.

The Department of Homeland Security and Federal Bureau of Investigation warned in a report distributed via email late on Friday that the nuclear, energy, aviation, water and critical manufacturing industries have been targeted along with government entities in attacks dating back to at least May.

The agencies warned that hackers had succeeded in compromising some targeted networks, but did not identify specific victims or describe any cases of sabotage.

The objective of the attackers is to compromise organizational networks with malicious emails and tainted websites to obtain credentials for accessing computer networks of their targets, the report said.

U.S. authorities have been monitoring the activity for months, which they initially detailed in a confidential June report first reported by Reuters. That document, which was privately distributed to firms at risk of attacks, described a narrower set of activity focusing on the nuclear, energy and critical manufacturing sectors.

Homeland Security and FBI representatives could not be reached for comment on Saturday morning.

Robert Lee, an expert in securing industrial networks, said the report describes activities from two or three groups that have stolen user credentials and spied on organizations in the United States and other nations, but not launched destructive attacks.

“This is very aggressive activity,” said Lee, chief executive of cyber-security firm Dragos.

He said the report appears to describe groups working in the interests of the Russian government, though he declined to elaborate. Dragos is also monitoring other groups targeting infrastructure that appear to be aligned with China, Iran, North Korea, he said.

The hacking described in the government report is unlikely to result in dramatic attacks in the near term, Lee said, but he added that it is still troubling: “We don’t want our adversaries learning enough to be able to do things that are disruptive later.”

The report said that hackers have succeeded in infiltrating some targets, including at least one energy generator, and conducting reconnaissance on their networks. It was accompanied by six technical documents describing malware used in the attacks.

Homeland Security “has confidence that this campaign is still ongoing and threat actors are actively pursuing their objectives over a long-term campaign,” the report said.

Government agencies and energy firms previously declined to identify any of the victims in the attacks described in June’s confidential report.

(Reporting by Jim Finkle in Toronto; Editing by Nick Zieminski)

Hackers gain entry into U.S., European energy sector, Symantec warns

By Dustin Volz

WASHINGTON (Reuters) – Advanced hackers have targeted United States and European energy companies in a cyber espionage campaign that has in some cases successfully broken into the core systems that control the companies’ operations, according to researchers at the security firm Symantec.

Malicious email campaigns have been used to gain entry into organizations in the United States, Turkey and Switzerland, and likely other countries well, Symantec said in a report published on Wednesday.

The cyber attacks, which began in late 2015 but increased in frequency in April of this year, are probably the work of a foreign government and bear the hallmarks of a hacking group known as Dragonfly, Eric Chien, a cyber security researcher at Symantec, said in an interview.

The research adds to concerns that industrial firms, including power providers and other utilities, are susceptible to cyber attacks that could be leveraged for destructive purposes in the event of a major geopolitical conflict.

In June the U.S. government warned industrial firms about a hacking campaign targeting the nuclear and energy sectors, saying in an alert seen by Reuters that hackers sent phishing emails to harvest credentials in order to gain access to targeted networks.

Chien said he believed that alert likely referenced the same campaign Symantec has been tracking.

He said dozens of companies had been targeted and that a handful of them, including in the United States, had been compromised on the operational level. That level of access meant that motivation was “the only step left” preventing “sabotage of the power grid,” Chien said.

However, other researchers cast some doubt on the findings.

While concerning, the attacks were “far from the level of being able to turn off the lights, so there’s no alarmism needed,” said Robert M. Lee, founder of U.S. critical infrastructure security firm Dragos Inc, who read the report.

Lee called the connection to Dragonfly “loose.”

Dragonfly was previously active from around to 2011 to 2014, when it appeared to go dormant after several cyber firms published research exposing its attacks. The group, also known as Energetic Bear or Koala, was widely believed by security experts to be tied to the Russian government.

Symantec did not name Russia in its report but noted that the attackers used code strings that were in Russian. Other code used French, Symantec said, suggesting the attackers may be attempting to make it more difficult to identify them.

(Reporting by Dustin Volz; Editing by Leslie Adler)

U.S. coal exports soar, in boost to Trump energy agenda, data shows

FILE PHOTO: Dump trucks haul coal and sediment at the Black Butte coal mine outside Rock Springs, Wyoming, United States, April 4, 2017. REUTERS/Jim Urquhart/File Photo

By Timothy Gardner and Nina Chestney

WASHINGTON/LONDON (Reuters) – U.S. coal exports have jumped more than 60 percent this year due to soaring demand from Europe and Asia, according to a Reuters review of government data, allowing President Donald Trump’s administration to claim that efforts to revive the battered industry are working.

The increased shipments came as the European Union and other U.S. allies heaped criticism on the Trump administration for its rejection of the Paris Climate Accord, a deal agreed by nearly 200 countries to cut carbon emissions from the burning of fossil fuels like coal.

The previously unpublished figures provided to Reuters by the U.S. Energy Information Administration showed exports of the fuel from January through May totaled 36.79 million tons, up 60.3 percent from 22.94 million tons in the same period in 2016. While reflecting a bounce from 2016, the shipments remained well-below volumes recorded in equivalent periods the previous five years.

They included a surge to several European countries during the 2017 period, including a 175 percent increase in shipments to the United Kingdom, and a doubling to France – which had suffered a series of nuclear power plant outages that required it and regional neighbors to rely more heavily on coal.

“If Europe wants to lecture Trump on climate then EU member states need transition plans to phase out polluting coal,” said Laurence Watson, a data scientist working on coal at independent think tank Carbon Tracker Initiative in London.

Nicole Bockstaller, a spokeswoman at the EU Commission’s Energy and Climate Action department, said that the EU’s coal imports have generally been on a downward trend since 2006, albeit with seasonable variations like high demand during cold snaps in the winter.

Overall exports to European nations totaled 16 million tons in the first five months of this year, up from 10.5 million in the same period last year, according to the figures. Exports to Asia meanwhile, totaled 12.3 million tons, compared to 6.2 million tons in the year-earlier period.

For a graphic on U.S. coal exports, click http://fingfx.thomsonreuters.com/gfx/rngs/USA-COAL-EXPORTS/010050650E9/index.html

Trump had campaigned on a promise to “cancel” the Paris deal and sweep away Obama-era environmental regulations to help coal miners, whose output last year sank to the lowest level since 1978. The industry has been battered for years by surging supplies of cheaper natural gas, brought on by better drilling technologies, and increased use of natural gas to fuel power plants.

His administration has since sought to kill scores of pending regulations he said threatened industries like coal mining, and reversed a ban on new coal leasing on federal lands.

TAKING CREDIT

Both the coal industry and the Trump administration said the rising exports of both steam coal, used to generate electricity, and metallurgical coal, used in heavy industry, were evidence that Trump’s agenda was having a positive impact.

“Simply to know that coal no longer has to fight the government – that has to have some effect on investment decisions and in the outlook by companies, producers and utilities that use coal,” said Luke Popovich, a spokesman for the National Mining Association.

Shaylyn Hynes, a spokeswoman at the U.S. Energy Department, said: “These numbers clearly show that the Trump Administration’s policies are helping to revive an industry that was the target of costly and job killing overregulation from Washington for far too long.”

Efforts to obtain comment from exporters Arch Coal and privately held Murray Energy Corp were unsuccessful. Contura Energy, which emerged as part of Alpha Natural Resource’s bankruptcy and restructuring, and filed for public offering in May, declined to comment.

A spokesman for Peabody Energy, the largest coal producer, though without a major export profile, said the United States was generally a “swing supplier of seaborne coal.”

U.S. Energy Information Administration analyst Elias Johnson said the U.S. coal industry may now be better positioned to meet foreign demand because U.S. miners have learned to produce at lower cost, after coming through a series of recent bankruptcies.

“There’s the possibility that the U.S. will become more of a primary player in the global coal trade market,” he said.

But he added there are also plenty of reasons the spike in demand could be temporary. For one thing, U.S. coal production and transportation costs are much higher than for other producers such as Indonesia and Australia.

Because coal can often be transhipped from European ports before it is consumed, it is also hard to determine where shipments ultimately end up.

Johnson pointed out that some of the fuel shipped into Western Europe, for example, could be making its way to other places like Ukraine, which is having trouble securing coal from its separatist-held regions.

Trump said last month that his administration is offering more coal to Ukraine, but it was unclear how, given deals are typically worked out between companies.

(Editing by Richard Valdmanis and Alden Bentley)

Higher energy prices boost producer inflation

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. producer prices rose more than expected in January, recording their largest gain in more than four years amid increases in the cost of energy products and some services, but a strong dollar continued to keep underlying inflation tame.

The Labor Department said on Tuesday its producer price index for final demand jumped 0.6 percent last month. That was the largest increase since September 2012 and followed a 0.2 percent rise in December.

Despite the surge, the PPI only increased 1.6 percent in the 12 months through January. That followed a similar gain in the 12 months through December. Economists polled by Reuters had forecast the PPI rising 0.3 percent last month and the year-on-year increase moderating to 1.5 percent.

The U.S. dollar pared losses against a basket of currencies after the data. Prices of U.S. Treasuries were mixed while U.S. stock index futures were largely flat.

The rise in producer prices comes as manufacturers report paying more for raw materials. The Institute for Supply Management’s (ISM) prices index surged in January to its highest level since May 2011. The ISM index, which is closely correlated to the PPI, has increased for 11 straight months.

The gains in PPI last month largely reflected increases in the prices of commodities such as crude oil, which are being boosted by a steadily growing global economy. Oil prices have risen above $50 per barrel.

But with the dollar strengthening further against the currencies of the United States’ main trading partners and wage growth still sluggish, the spillover to consumer inflation from rising commodity prices is likely to be limited.

A government report on Friday showed import prices excluding fuels fell in January for a third straight month. Data on Wednesday is expected to show the consumer price index increased 0.3 percent in January after a similar gain in December, according to a Reuters survey of economists.

Last month, prices for final demand goods increased 1.0 percent, the largest rise since May 2015. The gain accounted for more than 60 percent of the increase in the PPI. Prices for final demand goods advanced 0.6 percent in December.

Wholesale food prices were unchanged last month after climbing 0.5 percent in December. Healthcare costs rose 0.2 percent. Those costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) index.

The volatile trade services component, which measures changes in margins received by wholesalers and retailers, shot up 0.9 percent in January after being unchanged in the prior month.

A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent. That followed a 0.1 percent gain in December. The so-called core PPI increased 1.6 percent in the 12 months through January, slowing from December’s 1.7 percent gain.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Ukraine investigates suspected cyber attack on Kiev power grid

Man poses in front of on a display showing the word 'cyber' in binary code, in this picture illustration taken in Zenica

By Pavel Polityuk

KIEV (Reuters) – Ukraine is investigating a suspected cyber attack on Kiev’s power grid at the weekend, the latest in a series of strikes on its energy and financial infrastructure, the head of the state-run power distributor said on Tuesday.

Vsevolod Kovalchuk, acting chief director of Ukrenergo, told Reuters that a power distribution station near Kiev unexpectedly switched off early on Sunday, leaving the northern part of the capital without electricity.

A Ukrainian security chief said last week that Ukraine needed to beef up its cyber defenses, citing a spate of attacks on government websites that he said originated in Russia.

Kovalchuk said the outage amounted to 200 megawatts of capacity, equivalent to about a fifth of the capital’s energy consumption at night.

“That is a lot. This kind of blackout is very, very rare,” Kovalchuk told Reuters by phone.

He said there were only two possible explanations for the accident: either a hardware failure or external interference.

The company’s IT specialists had found transmission data that had not been included in standard protocols, suggesting that external interference was the likeliest scenario.

SOMETHING NEW

Over the past month, Ukraine’s finance and defense ministries and the state treasury have said their websites had been temporarily downed by attacks aimed at disrupting their operations.

Kovalchuk said Ukraine’s state security service had joined the investigation. “There are no final conclusions yet about what it was, but experts say that this was something new and they have not encountered this before,” Kovalchuk said.

Last December, another Ukrainian regional power company Prykarpattyaoblenergo reported an outage, saying the area affected included the regional capital Ivano-Frankivsk. Ukraine’s state security service blamed Russia.

Experts widely described that incident as the first known power outage caused by a cyber attack. The U.S. cyber firm iSight Partners identified the perpetrator as a Russian hacking group known as “Sandworm.”

“The purpose of this Ukraine attack: Two options. Either it’s a show of power. Prove to the people of Ukraine that your government cannot protect you,” Mikko Hypponen, Chief Research Officer at F-Secure, told Reuters.

The other option is that there was something else happening at the same time and they needed this to be their cover or somehow to assist another operation to succeed as a result of the power outage, he added.

He said that during this year the cyber capabilities of the Russian government have done nothing but increase and we are seeing the beginnings of a new arms race, in both military and cyber activities.

“We are tracking several different, separate attack campaigns which we link back to different Russian intelligence agencies, and the targets are typically not just for sabotage, but for espionage,” he said.

“The vast majority of government attacks that we attributed to the Russian government are not about sabotage or disruption but about collecting intelligence and spying on foreign computer networks, and that has been increasing.”

(additional reporting by Oleg Vukmanovic in Milan, Editing by Matthias Williams and Ralph Boulton)

Netanyahu says Netherlands, Israel to improve water, gas supply to Gaza

Israel's Prime Minister Benjamin Netanyahu attends the weekly cabinet meeting at his office in Jerusalem

AMSTERDAM (Reuters) – The Dutch government will assist Israel in improving water and gas supplies to energy-strapped Gaza, Prime Minister Benjamin Netanyahu said on Tuesday during a visit to the Netherlands.

Netanyahu said that while his government is in a conflict with “terrorists” in the occupied territories, Israel still wishes to improve the quality of life for most people living there.

“We have no battle, no qualms with the people of Gaza”, he said. “The first step is to improve the supply of energy and water to Gaza, including laying a gas pipeline.”

He said he was publicly committing to making it happen.

Gaza faces an energy crisis due to damage to its electric network from past conflicts, together with Israel’s coastal blockade and other sanctions and restrictions.

Currently the country has electricity less than half the time, using an 8-hour on, 8-hour off rationing system.

A gas pipeline from Israel could allow Gaza’s power plant to double generation from around 200MW at present.

Water supplies to Gaza and the Israeli-occupied West Bank have long been a point of tension between the neighbours, with the Palestinians saying Israel prevents them from accessing adequate water at an affordable price.

Netanyahu did not elaborate on details of the gas pipeline plan, saying only the Dutch, with their long history of water management, would help.

(Reporting by Toby Sterling and Anthony Deutsch; Editing by Jeremy Gaunt)

Israel, Turkey restore ties in deal spurred by energy prospects

Israeli Prime Minister Benjamin Netanyahu looks on during a meeting with his Italian counterpart Matteo Renzi at Chigi Palace in Rome, Italy June 27, 2016.

By Ercan Gurses and Jeffrey Heller

ANKARA/JERUSALEM (Reuters) – Israel and Turkey announced on Monday they would normalize ties after a six-year rupture, a rare rapprochement in the divided Middle East driven by the prospect of lucrative Mediterranean gas deals as well as mutual fears over growing security risks.

Turkish Prime Minister Binali Yildirim said the two countries would exchange ambassadors as soon as possible.

The mending in relations between the once-firm allies after years of negotiations raises the prospect of eventual cooperation to exploit natural gas reserves worth hundreds of billions of dollars under the eastern Mediterranean, officials have said.

Israeli Prime Minister Benjamin Netanyahu said it opened the way for possible Israeli gas supplies to Europe via Turkey.

The move also comes as the Middle East is polarized by Syria’s civil war and as the rise of Islamic State threatens regional security, leaving both countries in need of new alliances.

Relations between Israel and what was once its only Muslim ally crumbled after Israeli marines stormed an aid ship in May 2010 to enforce a naval blockade of the Hamas-run Gaza Strip and killed 10 Turkish activists on board.

Speaking after meeting U.S. Secretary of State John Kerry in Rome, Netanyahu said the agreement was an important step. “It has also immense implications for the Israeli economy, and I use that word advisedly,” he told reporters.

Kerry welcomed the deal, saying, “We are obviously pleased in the administration. This is a step we wanted to see happen.”

Turkey expelled Israel’s ambassador and froze military cooperation after a 2011 U.N. report into the Israeli raid on the Mavi Marmara largely exonerated the Jewish state. Israel and NATO member Turkey, which both border Syria, reduced intelligence sharing and canceled joint military exercises.

Netanyahu made clear the naval blockade of Gaza, which Ankara had wanted lifted under the deal, would remain in force, although humanitarian aid could continue to be transferred to Gaza via Israeli ports.

“This is a supreme security interest of ours. I was not willing to compromise on it. This interest is essential to prevent the force-buildup by Hamas and it remains as has been and is,” Netanyahu said.

But Yildirim said the “wholesale” blockade of Gaza was largely lifted under the deal, enabling Turkey to deliver humanitarian aid and other non-military products.

A first shipment of 10,000 tonnes would be sent next Friday, he said, and work would begin immediately to tackle Gaza’s water and power supply crisis.

“Our Palestinian brothers in Gaza have suffered a lot and we have made it possible for them to take a breath with this agreement,” Yildirim told a news conference in Ankara.

Turkish President Tayyip Erdogan spoke with Palestinian President Mahmoud Abbas by phone on Sunday night and told him the deal would improve the humanitarian situation in Gaza, sources in his office said. They said Western-backed Abbas, who lost control of Gaza to Hamas in fighting in 2007, had expressed satisfaction.

ENERGY TIES

Restoring relations with Ankara is a linchpin in Israel’s strategy to unlock its natural gas wealth. It is looking for export markets and is exploring a pipeline to Turkey as one option, both for consumers there and as a connection to Europe.

“This is a strategic matter for the state of Israel. This matter could not have been advanced without this agreement, and now we will take action to advance it,” Netanyahu said.

Gas, he said, had the potential to strengthen Israel’s coffers “with a huge fortune”.

Shares in Turkey’s Zorlu Energy <ZOREN.IS>, which has activities in Israel, rose 11 percent on news of the agreement. Israeli energy stocks also rose in Tel Aviv.

Yildirim was more cautious.

“Firstly let normalization begin and, after that, the level to which we cooperate on whatever subject will be tied to the efforts of the two countries,” he said. “There is no point in talking about these details now.”

Israel, which had already offered its apologies for the 2010 raid on the Mavi Marmara activist ship – one of Ankara’s three conditions for a deal – agreed to pay out $20 million to the bereaved and injured. The deal requires Turkey pass legislation protecting Israeli soldiers against related lawsuits.

A senior Turkish official described the agreement as a “diplomatic victory”, even though Israel pledged to maintain the Gaza blockade it says is needed to curb arms smuggling by Hamas, an Islamist group that last fought a war with Israel in 2014.

“Israel comes out on top here,” said Louis Fishman, assistant professor of history at Brooklyn College in New York, who specializes in Turkish and Israeli affairs.

“From the start it believed that a deal could be worked out where Turkish aid was able to enter the Gaza Strip under Israeli supervision. It seems this is what was struck.”

(Additional reporting by Warren Strobel in Rome, Dan Williams in Jerusalem, Daren Butler and Ayla Jean Yackley in Istanbul; Writing by Nick Tattersall; Editing by Dominic Evans)

Oil Plows through $45 a barrel; U.S. producers rush to lock in prices

Oil pump jacks are seen next to a strawberry field in Oxnard

y Liz Hampton

HOUSTON (Reuters) – U.S. oil producers pounced on this month’s 20 percent rally in crude futures to the highest level since November, locking in better prices for their oil by selling future output and securing an additional lifeline for the years-long downturn.

The flurry of dealing kicked off when prices pierced $45 per barrel earlier in April. It picked up in recent weeks, allowing producers to continue to pump crude even if prices crash anew.

While it was not clear if oil prices will remain at current levels, it may also be a sign producers are preparing to add rigs and ramp up output.

This week, Pioneer Natural Resources Co;, a major producer in the Permian shale basin of West Texas, said it would add rigs with oil prices above $50 per barrel.

Selling into 2017 tightened the structure of the forward curve, with December 2017’s premium to December 2016; known as a contango, narrowing to $1.30, its tightest since June 2015. That spread had been as wide as $2.15 a barrel just four days earlier.

Open interest in the December 2017; WTI contract was at a record high of 122,533 lots on Friday, up about 20,000 lots from the start of April.

“U.S. producers have been quick to lock in price protection as the market rallies given that the vast number of companies remain significantly under hedged relative to historically normal levels,” said Michael Tran, director of energy strategy at RBC Capital Markets in New York.

It was not clear which companies embarked on the forward selling. In the past a handful of producers such as Anadarko Petroleum; have sporadically hedged in large chunks.

But trade sources pointed to increased activity among financial instruments for the balance of 2016, calendar year 2017 and even 2018.

The uptick in producer hedging activity came as benchmark West Texas Intermediate (WTI) futures finished April up 20 percent for the biggest monthly increase in a year. Prices have rebounded by as much as 80 percent on expectations of falling U.S. production after touching a 12-year low in February.

On Friday, Baker Hughes reported oil drillers removed another 11 from operation the week to April 29, bringing the total oil rig count to 332, its lowest since November 2009.

The calendar 2017 strip week climbed to $49.44 on Thursday, its strongest since early December. In January, it had traded as low as $37.38 a barrel.

To outlast the downturn, many producers like Continental Resources;, are deferring completions on already drilled wells, known as DUCs.

“There are some companies that will hedge at $45 and $50, giving them more incentive to bring those DUCs on line,” said Hakan Carapcioglu, an energy market analyst with Ponderosa Advisors, a Denver-based consultancy.

To be sure, many have questioned the fundamentals backing the recent oil rally, particularly as U.S. crude inventories currently stand at a record 540.6 million barrels, according to the latest data from the Energy Information Administration. [EIA/S]

(Reporting by Liz Hampton; Editing by David Gregorio and Alan Crosby)

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