29th July 2016
The onshore rig count jumped for a fifth consecutive week, adding 1, and reflects a nine week gain of 17% (up 64). Rigs targeting oil, since bottoming out the week of 22 May has increased 18% (up 58) and now stands at 374. Rigs targeting oil in the Permian have increased ~26% (up 35) over the same time period and this area is growing its share of total U.S. crude production.
Oil futures fell to their lowest levels in more than three months after U.S. government data showed the first weekly climb in domestic crude inventories in ten weeks, along with an increase in gasoline stockpiles and an another rise in total U.S. crude production. Elevated refinery demand in the 1st quarter on the back of wider margins has resulted in a glut of refined product that is now coming back to bite. A flood of global gasoline is slaying the market’s hope for a near term crude price recovery, and the price for a barrel of Brent crude has fallen ~20% from a June peak and was trading at close to $42 per barrel on Friday before recovering above $43 later in the day.
U.S. government data on Wednesday indicated a rise in crude and gasoline inventories which added to an already massive global refined product glut. U.S. commercial stocks are a decent reflection of the current oversupplied landscape of the global oil market. U.S. gasoline consumption typically slows in August and September and refiners use this dip to shut for seasonal maintenance. Refiners’ demand for oil has dropped an average of 1.2 million barrels per day from July to October. With gasoline stockpiles at the highest seasonal level since 1990, the U.S. refinery input data is showing that refiners could be starting their seasonal maintenance earlier than normal. This will impede support from the oil market and extend the problem of excess global crude supply.
In addition to that, crude suppliers are not aiding price recovery story. In June OPEC raised production to 32.9 million barrels per day, Russia (lead by Rosnef/BP JV) has indicated that their production could increase by 590,000 barrels per day over the next three years and in the U.S. drillers have been increasing oil rigs since May.
Markets are looking ahead and concerns are building that crude price be heading further south this winter, despite longer term crude oil fundamentals continuing to improve; demand is on trend to add 1.4 million barrels per day and Non-OPEC production continues to decline.
Sources: EIA Weekly Updates and GCA Analysis
Despite each natural gas stripper well's small individual production, in aggregate they make a contribution to total natural gas production. The production share of stripper gas wells has remained relatively constant over the past 25 years, rising from about 10% in 1991 to 15% in 2006–09 and dropping again to about 11% in 2015.
On July 25, the liquefied natural gas (LNG) vessel Maran Gas Apollonia became the first-ever LNG vessel to transit the recently expanded Panama Canal. The vessel is carrying LNG sourced from the U.S.-based Sabine Pass liquefaction terminal located in Louisiana
Cheniere Energy Inc. has sent 19 tankers of the liquefied gas abroad in 2016 from its Sabine Pass terminal in Louisiana. By 2020, five terminals will be operating on the U.S. Gulf Coast and in Maryland. The U.S. began shale gas exports by sea this year and is projected by the International Energy Agency to become the world’s third-largest liquefied natural gas supplier in five years.
The total number of active onshore rigs increased to 444, down 1,432 (~76%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total increased to 225 (up 1 last week), with Eagle Ford down 3, Williston remains flat and Permian up 4. The horizontal rig count decreased to 354, down 3 last week.
Total U.S. rig count (including the Gulf of Mexico) stands at 463, up 1 last week, with rigs targeting oil up 3 for a 48-week total decline of 292. The average weekly decline rate now stands at ~6 oil rigs per week.
Oil was poised to enter bear market with its biggest monthly decline in a year, as teeming crude and fuel inventories forced a retreat.
Brent, the global benchmark for oil, was down $3.06 to US$42.30 a barrel, reflecting a loss of 6.75% on the week.
WTI crude slid $2.62 to $41.30 a barrel, down 5.97% on the week.
U.S. Supply and Demand
U.S. crude oil refinery inputs averaged 16.6 million barrels per day, with refineries at 92.4% of their operating capacity last week. This is 277,000 barrels per day less than the previous week’s average.
U.S. gasoline demand over past four weeks was at 9.8 million, up 2.6% from a year ago.
On the supply side, EIA data indicated that total domestic crude production rose by 21,000 barrels to 8.515 million barrels a day as output in Alaska grew, though it fell by 12,000 barrels to 8.033 million barrels a day in the lower 48 states. The past 27 week decline total (lower 48 states) stands at 686,000 barrels per day (an average of ~25,407 barrels per week).
U.S. crude imports averaged 8.4 million barrels per day last week, an increase of 303,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, ~8.7% above the same four-week period last year.
Crude oil inventories increased 1.7 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) saw an increase of 1.1 million barrels; total storage is 65.2 million barrels (~72.5% utilization).
Sources: EIA Weekly Update and GCA analysis
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