2017-02-12

in case you haven't heard, the Army Corps of Engineers reneged on its commitment to conduct a thorough environmental review of the Dakota Access pipeline, approved the final easement needed to complete the pipeline, and granted the permit that will allow its completion...after that green light from the Corps on Tuesday, Energy Transfer Partners said on Wednesday that it plans to resume work immediately, and Phillips 66, holder of a 25 percent stake in the project, said they expected the Dakota Access Pipeline to start pumping Bakken crude in the second quarter...according to the Associated Press, the Cheyenne River Sioux filed a legal challenge to the easement Thursday in federal court in Washington, D.C. while Standing Rock Sioux Chairman David Archambault flew to Washington to meet with Trump administration officials to share the Tribe’s perspective on why they so strongly opposed the project... U.S. District Judge James "Jeb" Boasberg, who will be overseeing the lawsuit filed by the Standing Rock and Cheyenne River Sioux, is said to be sympathetic to the historic exploitation of Indians in America, but has also denied an earlier attempt by the Standing Rock tribe to halt the pipeline work...

meanwhile, petrogeologist and oil analyst Art Berman echoed the same reservations that i had voiced in reporting that Trump had ordered expedited approval and construction of the Keystone XL...in an article posted at oilprice.com and elsewhere, Berman asserts that it will take at least $85 oil prices to develop enough new oil sand projects needed to fill the Keystone XL, and that even under the optimistic projections from the Canadian Association of Petroleum Producers that annual oil sand production will grow 128,000 barrels per day until 2021, it would take still 10 years to fill the Keystone, even if none of the other new Canadian pipeline projects currently approved and underway were completed...he concludes that TransCanada’s bet is that oil prices will move much higher and more quickly than most forecasts anticipate and that the volumes of bitumen will be there by the time that the pipeline is built, and also a bet that US tight oil plays will continue to produce enough light oil for several decades to dilute the tarry goop to a viscosity light enough to pipe and refine....i'll take the other side of that bet...

at any rate, at least we're going to get a brief respite from the onslaught of pipeline approvals we've seen over the past two weeks...two weeks ago, during his initial barrage of pipeline diktats, Trump named Cheryl LaFleur as acting chairwoman of the Federal Energy Regulatory Commission, and largely as a result of that, Norman Bay, who served as FERC chairman for the past two years, tendered his resignation effective February 3rd...that left the 5 member commission with just two sitting commissioners, LaFleur and Colette Honorable, and as a result FERC no longer has a quorum, can't approve anything, and hence cancelled their next monthly meeting on February 16th....so until such time as Trump vets and appoints at least one more commissioner, and that new commissioner is approved by the Senate, no more pipelines can be approved...according to the Associated Press, there's at least a half dozen major pipeline projects totaling more than $10 billion that now wait approval, including the $2 billion Pennsylvania to Ohio and Michigan Nexus pipeline, that would pass through the counties south of us, and the Atlantic Coast pipeline, which several members of Trump's transition team and White House staff have business or lobbying connections to..

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oil continued to trade in a narrow range this week as news that OPEC had achieved 90% compliance to their agreed to production cuts offset the news that US oil supplies saw their 2nd largest weekly jump in the EIA's records...strength in U.S. dollar, which makes internationally traded commodities cheaper, weighed on oil prices to start off the week, as US WTI oil for March delivery fell 1.5% to close at $53.01 a barrel, after closing the prior week at $53.83....prices continued to fall on Tuesday, after the EIA forecast that US crude output would hit a fracking era high in 2018 and the American Petroleum Institute reported the 2nd largest increase in oil inventories in history, along with large increases in gasoline and distillate supplies, and again ended another 1.5% lower at $52.17 a barrel....however, prices steadied on Wednesday, despite confirmation of the large oil supply increase from the EIA, and closed up 17 cents at $52.34 a barrel, as a drop in gasoline supplies encouraged traders to think that demand for gas was returning to normal....momentum from that rebound carried into Thursday, when prices rose to close at $53.00, after oil ministers from Iran and Qatar suggested that OPEC production cuts might be extended into the 2nd half of this year...oil prices then rose 1.6% on Friday to close out the week 3 cents higher than last week at $53.86 a barrel, after the International Energy Agency said OPEC had achieved a record initial compliance of 90% with their planned production cuts, that global oil output had fallen by 1.5 million barrels per day, and revised upward their estimate of global oil demand growth for this year  from 1.3 million barrels per day to 1.4 million  barrels per day...

for an initial look at those OPEC compliance levels, we have a table of OPEC oil output for December and January as per the IEA (note that's the International Energy Agency, headquartered in Paris, as distinguished from the US EIA, the Energy Information Administration of the US Dept of Energy, in case those similar acronyms are confusing to you)



the above table comes from the IEA via Zero Hedge and it shows the IEA estimates of the December output of crude, in millions of barrels, from each of the OPEC members in the first column, estimates of their January output of crude in the second column, and then the supply baseline in the third column, also in millions of barrels ...it's that supply baseline, which is approximately equal to the October production level of each member, on which the 4.5% OPEC production cuts are based, so the amount in millions of barrels of crude that each member is expected to cut is therefore shown in the 4th column, as the "agreed cut"....then, based on these estimates of January oil production, the "actual cut", or the difference between the baseline and each member's January production, is then shown in the next to last column...finally, in the last column, the IEA computes a compliance percentage, which is simply the amount each member has cut shown as a percentage of what they agreed that they would cut...at the bottom, they then total OPEC figures and give us the totals for all 11 members of OPEC, and conclude from those totals that they've achieved 90% compliance..while that's all pretty much self explanatory, as are the footnotes at the bottom of the table, we'd note that the Saudis by themselves cut 116% of what they'd agreed to, and thus account for more than half of the OPEC cuts so far....that means that without the Saudi cuts, OPEC compliance was at a not very spectacular 71.6%...

The Latest Oil Stats from the EIA

this week's oil data for the week ending February 3rd from the US Energy Information Administration showed that our imports of crude oil were at their highest level in over 4 years, while our refining of that oil fell for the 4th week in a row, and as a result this week's surplus of crude that was added to our stored supplies ended up as the 2nd largest on record...our imports of crude oil rose by an average of 1,082,000 barrels per day to an average of 9,372,000 barrels per day during the week, while at the same time our exports of crude oil rose by 18,000 barrels per day to an average of 567,000 barrels per day, which meant that our effective imports netted out to 8,805,000 barrels per day for the week, 1,064,000 barrels per day more than last week...at the same time, our crude oil production rose by 63,000 barrels per day to an average of 8,978,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled an average of 17,783,000 barrels per day during the week...

meanwhile, refineries reportedly used 15,893,000 barrels of crude per day during the week, 54,000 barrels per day less than during the prior week, while at the same time, 1,976,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we consumed or stored 86,000 more barrels of oil per day than were accounted for by our oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom 86,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that number by the method we just showed, and hence we've been calling it the EIA's weekly oil fudge factor...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 8.463 million barrels per day, now 10.0% higher than the same four-week period last year...from that same source, we also find that this week's 63,000 barrel per day oil production increase included a 73,000 barrel per day jump in oil production in the lower 48 states, which was partially offset by a 10,000 barrel per day decrease in output from Alaska..our crude oil production for the week ending February 3rd thus was just 2.3% lower than the 9,186,000 barrels of crude that we produced during the week ending February 5th of last year, and 6.6% below our June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 87.7% of their capacity in using those 15,893,000 barrels of crude per day, down from 88.3% of capacity the prior week and down from the year high of 93.6% of capacity just four weeks earlier, but up from the 86.1% capacity utilization rate during the same week a year ago, as refineries are now into their regular winter slowdown...thus, even though the week's oil refining was down by more than 1.2 million barrels per day from the first week of this year, it was 2.5% more than the 15,510 000 barrels of crude refined during the week ending February 5th, 2016....and even though they took in less crude, gasoline production from those refineries rose by 703,000 barrels per day to 9,804,000 barrels per day during the week ending February 3rd, which was 2.6% more than the 9,553,000 barrels per day of gasoline that were produced during the week ending February 5th a year ago (part of this week’s increase was a 226,000 barrel per day adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components)....meanwhile, refineries' production of distillate fuels (diesel fuel and heat oil) also rose, increasing by 125,000 barrels per day to 4,802,000 barrels per day, which was up by 10.2% from the 4,357,000 barrels per day of distillates that were being produced during the week ending February 5th last year, during a mild El Nino winter...

however, even with the increase in our gasoline production, the EIA reported that our gasoline inventories fell by 869,000 barrels to 256,217,000 barrels as of February 3rd, the first drop in our gasoline supplies in 6 weeks...that happened as our domestic consumption of gasoline rose by 631,000 barrels per day to a closer to normal 8,941,000 barrels per day, following 4 weeks wherein gasoline demand approached 16 year lows...that gasoline supply draw-down occurred despite gasoline imports that were up by 323,000 barrels per day to 811,000 barrels per day, while our gasoline exports remained unchanged at 902,000 barrels per day...however, even with this week's withdrawal, our gasoline supplies are up by more than 29 million barrels since Christmas, and remain fractionally higher than the 255,657,000 barrels of gasoline that we had stored on February 5th of last year, and 5.6% above the 242,647,000 barrels of gasoline we had stored on February 6th of 2015...

meanwhile, with the increase in distillates production, our supplies of distillate fuels rose by 29,000 barrels to reach 170,746,000 barrels by February 3rd, for an increase of over 19 million barrels over the first 6 weeks of winter, at a time of year when distillates are usually being drawn down and consumed as heat oil...the amount of distillates supplied to US markets, a proxy for our consumption, rose by 101,000 barrels per day to 3,910,000 barrels per day, and was thus above the average of the past 5 years, and our exports of distillates rose by 217,000 barrels per day to 1,097,000 barrels per day, or else we would have had even more surplus.....still, our distillate inventories ended the week 6.1% higher than the distillate inventories of 160,976,000 barrels of February 5th last year, and 30.1% above the distillate inventories of 131,223,000 barrels of February 6th, 2015…

lastly, as we mentioned in opening this segment, the elevated level of our oil imports led to the 2nd largest recorded jump in our weekly inventories of crude oil, which rose by 13,830,000 barrels to 508,592,000 barrels by January 27th, a level which is now only 0.7% below the April 29th record level of 512,095,000 barrels...moreover, we ended the week with 8.1% more crude oil in storage than the then record 470,676,000 barrels we had stored on February 5th of 2016, and 32.5% more crude than the 383,800,000 barrels of oil we had in storage on February 6th of 2015...since it's been a while since we've taken a look at a graph of our oil supplies, we'll include the EIA graph of them here first, and explain why these common EIA graphs have become inadvertently deceptive...



in the graph above, copied from the EIA's This Week in Petroleum Oil Section, the blue line shows the recent track of US oil inventories over the period from June 2015 to February 3, 2017, while the grey shaded area represents the range of US oil inventories millions of barrels as reported weekly by the EIA over the prior 5 years for any given time of year…the grey area intends to show us the normal range of US oil inventories as they fluctuate from season to season over the 5 years prior to the two years shown by the blue line...however, note that the increase in the grey wedge on the right now includes the record oil inventories that we were seeing last year at this time (ie, it includes the image of the blue line, or the early 2016 record inventories) which we have recently been exceeding by 5% to 10% each week...thus, the grey section of the graph, supposedly representing historical seasonal levels, has already become bloated by the record inventories that we've been seeing for two years running, as we can see in the blue line...thus comparing the current inventory level in blue to the grey shaded area is deceptive, in that the top of that grey area now represents record glut of the prior year...by rights, to compare the current blue line to a normal level of inventories, it should be compared to the bottom of the grey shaded area, as we'll show in the graph below, which gives us the exact crude oil supplies for every week of the period:..



the above graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of independent investment and economics research, run by Dr Ed Yardeni...it shows the end of the week stocks of crude oil in millions of barrels for each week beginning with January 2013, up to and including this week's report for February 3rd, with graphs for each year color coded as indicated...here we can see how our oil inventories stayed in a narrow range during 2013 and 2014 (and during the years before then, for that matter), represented by the mustard and green bands, typically falling to below 330 million barrels by the end of each summer and then rising to nearly 370 million barrels by early spring....however, at the beginning of 2015, represented by the blue colored graph, our inventories of oil started rising each week till they topped 450 million barrels at the end of April 2015, and then stayed elevated in a range 80 to 100 million barrels above the previous norms over the rest of that year...that continued into 2016, represented by the grape colored graph, and although the rate of increase over 2015 tailed off late in the year, our 2016 oil supplies had generally averaged about 15% above 2015's elevated levels, and more than 40% above historical levels...now we see in the scarlet colored graph, representing the beginning of 2017, that our oil supplies are rising again from the comparable seasonal records set in 2016...thus, to accurately compare today's oil inventories to the seasonal norm, we'd have to go back not just one or two years, but three years to early 2014, before the current oil glut developed...doing that, we'd find that today's oil inventories of 508.6 million barrels are 54.1% higher than the oil inventories of 329,983,000 barrels seen on February 7th, 2014...

This Week's Rig Count

US drilling activity increased for the 14th time in 15 weeks during the week ending February 10th, with the four week increase in drilling rigs still the largest 4 week increase since January 2010...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 12 rigs to 741 rigs in the week ending on this Friday, which was 200 more rigs than the 541 rigs that were deployed as of the February 12th report a year earlier, but of course still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 8 rigs to 591 rigs this week, which was up from the 439 oil directed rigs that were in use a year ago, but down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...meanwhile, the count of drilling rigs targeting natural gas formations rose by 4 rigs to 149 rigs this week, which was also up from the 102 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...there also remained a single rig that was classified as miscellaneous, which we could call an increase from a year ago, when there were no miscellaneous rigs at work...

one drilling platform offshore from Louisiana in the Gulf of Mexico was shut down this week, which cut the Gulf of Mexico rig count back down to 20, which was also down from the 25 rigs working in the Gulf a  year ago…our total offshore count for the week was thus cut back to 21 rigs, as a drilling operation is still going on in the offshore waters off Alaska...however, one drilling platform started operations on an inland lake in southern Louisiana, where there are now 3 such inland waters operations, which is also up from 2 rigs working on inland waters a year ago..

the number of horizontal drilling rigs working in the US increased by 11 rigs to 607 rigs this week, which is now up by 174 rigs from the 433 horizontal rigs that were in use in the US on February 12th last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, a net of one vertical rig was added during the week, bringing the total vertical rig count up to 68, which was also up from the 59 vertical rigs that were deployed during the same week last year...meanwhile, the directional rig count was unchanged at 66 rigs as of February 10th, which was 17 rigs more than last February 12th's count of 49 directional rigs....

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of February 10th, the second column shows the change in the number of working rigs between last week's count (February 3rd) and this week's (February 10th) count, the third column shows last week's February 3rd active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 12th of February, 2016...

once again, we see new drilling in the Permian basin of western Texas and New Mexico accounted for half of this week's increase, while a 3 rig addition in the Eagle Ford of south Texas brought the total increase in the state to 7 rigs, with 4 of the Permian rigs apparently on the New Mexico side of the border...on the other hand, the Cana Woodford of Oklahoma, home to the SCOOP and the STACK basins, was down by 5 rigs to 51 rigs this week, after rising by 7 rigs last week, 3 rigs the prior week, and 9 rigs the week before that; i have no idea what's going on down there...nor have i heard news that would explain the 2 rigs that were shut down in Ohio's Utica, which cut the state total back to 19 rigs...we can explain the 4 natural gas rig increase in the light of that Ohio drop by noting the 3 rig increase in the Marcellus, another gas rig in the Haynesville, and two gas rigs in "other basins", which Baker Hughes doesn't name in their summary data...otherwise, what we see above is what we got; there were no changes in states other than those listed above...

International Rig Counts for January

Baker Hughes also released the international rig counts for January on Tuesday of this past week, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1,918 rigs were drilling for oil and natural gas around the globe in January, which was up from the 1,772 rigs that were drilling around the globe in December, and up from the 1,969 rigs that were working globally in January of last year, which was the first time global drilling activity surpassed year earlier totals since December of 2014....increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 634 rigs in December to 683 rigs in January, which was also up from the average of 654 rigs that were working in the US in January a year ago, while the average Canadian rig count rose from 209 rigs in December to 302 rigs in January, which was also up from the 192 Canadian rigs that were deployed in January a year earlier....outside of Northern America, the International rig count rose by 4 rigs to 933 rigs in January, which was still down from 1,095 rigs a year ago, as increases in drilling in the Middle East and Eastern Asia more than offset a decrease in Latin American activity..

drilling activity in the Middle East rose for just the 5th time over the past 13 months, as the countries included in this region added a net of 6 rigs, including 3 offshore, increasing their active rig average to 382 rigs for the month, which was still down from the 407 rigs deployed in the Middle East a year earlier....OPEC member Kuwait accounted for the entire increase, as they started 8 more rigs in January and now have 54 rigs active, which was up from the 40 rigs the Kuwaitis were running a year ago....in addition, Egypt, who is not an OPEC number and who has not agreed to output cuts, added 1 rig in January and thus had 25 rigs active, which was still down from the 42 rigs they were running a year earlier....on the other hand, Oman, who is not an OPEC member but who has committed to a production cut of 45,000 barrels a day, cut back their drilling by 2 rigs, from 59 rigs in December to 57 rigs in January, which left them down from the 70 rigs they were running in January a year ago...in addition, the Saudis pulled out one rig in January, which left them with 124 rigs still active, the same number as they had running a year earlier...however, Saudi Arabia's rig count has averaged near 125 rigs weekly since early 2015, up from their average of around 105 rigs in 2014, so they've not yet even pulled back to the level of drilling they were doing before OPEC opened the spigots...among other major OPEC producers, Iraq's drilling was unchanged at 41 rigs in January, while Abu Dhabi of the United Arab Emirates was also unchanged at 48 rigs, the same as their count a year ago, although like the Saudis, they are still doing far more drilling than their 30 rig average of early 2014...

drilling activity in the Asia-Pacific region also increased by a net of 6 rigs to 198 rigs in January, even as their offshore deployment fell by 5 from 87 rigs to 82, which was down from the 198 rigs working the region a year earlier, which just included 75 platforms working offshore at that time....Indonesia, who was booted out of OPEC for not agreeing to the group's production cuts, added 7 rigs and thus had 23 rigs working during January, up from 20 rigs a year earlier....Australia added 5 more rigs, after adding 5 rigs in December, bringing their total to 14 rigs active nationwide, which was thus up from the 13 rigs they were running a year earlier... Brunei, who had shut down both of the rigs they had active in December, started both rigs back up in January, and the 2 rigs they're now running are the same as they had a year earlier....on the other hand, China shut down 5 more offshore rigs, after they had shut down 3 rigs in December, leaving them with 20 rigs working offshore, down from the 27 offshore rigs they were running last January...at the same time, both Papua New Guinea and Malaysia both idled one rig; that left Papua New Guinea with 2 rigs active, same as they had a year earlier, and left Malaysia with 3 rigs running, down form the 5 rigs they were running a year earlier...

meanwhile, the Latin American region saw their active drilling rig numbers drop by a net of 8 rigs to 176 rigs, down from 243 rigs in January of last year, and down from 321 rigs as recently as September of 2015, as the region idled 92 rigs over the first 6 months of 2016....Argentina, where they had shut down 11 rigs in December, shut down another 7 in January, and now have 52 rigs active, down from 72 rigs a year ago, and also down from over the over 100 active rigs Argentina saw through most of 2015...Mexico, who has agreed to cut their oil output by 100,000 barrels a day, idled 3 rigs for the month, which left them with 16 active rigs, down from the 43 rigs they were running last January....Venezuela and Ecuador, both members of OPEC, each shut down 1 rig; that left Venezuela with 51 rigs, down from 67 last January, and left Ecuador with 6 rigs, up from the single rig they were running last January, which was during an anomalous slowdown in Ecuador's normal activity.....in addition, Chile shut down 2 rigs and now have 2 remaining, down from the 3 rigs they had active last January, and Suriname shut down the only rig they had active in December, while they had two active a year ago...on the other hand, Brazilian drillers, who were not party to the OPEC production cuts, added 3 rigs during the month; which brought their active rig count back up to 16 rigs, which was still down from the 34 rigs deployed in Brazil a year earlier.....Trinidad and Tobago, meanwhile, added two rigs, and now have 5 rigs working, which is still down from the 7 rigs they had running a year ago...in addition, both Columbia and Peru added a single rig; for Peru, that brought their active rig count up to 2 rigs, up from none a year earlier, while for Columbia, their count rose to 20 rigs, up from the 8 rigs they had running a year earlier...

drilling activity also slipped a bit in Europe, falling by 1 rig to 98 rigs, which was down from the 108 rigs working in Europe a year ago at this time, as their offshore drilling activity fell from 35 rigs to 31 rigs, also down from 35 rigs offshore a year ago...4 platforms offshore from Norway were idled, leaving 12 still active there, down from 18 a year ago, while the UK idled 3 offshore, leaving them 8 active, same as they had offshore last January....on the other hand, 2 new offshore platforms were deployed off the coast of the Netherlands, and one was set up in the Mediterranean off of Italy...those brought the Netherlands count up to 3 offshore, from one on land and one offshore in December, but down from two on land and two offshore in January of 2016, and brought the Italian count up to 5 rigs, from 4 land based rigs in December and 3 on land last January...elsewhere on land in Europe, Turkey added 3 rigs and now have 32 active, up from 29 rigs in December and a year ago, and France started up two rigs, up from none in in France in December and none most of last year...meanwhile, the Germans shut down 1 rig, leaving them 3 still active, down from the 7 rigs they had deployed a year earlier...

lastly, the African continent saw a net increase of 1 rig to 79 rigs in January, which was still down from the 94 rigs working in Africa last year at this time...OPEC member Nigeria, who is exempt from the organization's production cuts for the time being, added 2 rigs and now have 6 rigs working, which was still down from the 9 rigs they had deployed a year ago...OPEC member Angola also added a rig, and now have 5 rigs active, also down from the 10 rigs they had active a year earlier...in addition, the Congo Republic, which had shut down all 3 rigs they had active in December, added 1 rig back in January, still down from the 3 rigs they had active last January...OPEC member Algeria shut down 1 rig, leaving 51 rigs still working in Algeria, same as they had a year ago....and both Liberia and Ghana shut down the only drilling rig they had active; a year ago, Liberia had no rigs and Ghana had one....finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 20 rigs active in January, were included in the Asian totals here...

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note: there's more here...

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