20th November 2015
The U.S. onshore rig count continued its march lower, down 6 this week, while WTI fell below US$40 for the first time since August on Wednesday before recovering back above US$41. The economics of LTO at this pricing point, coupled with financing constraints, suggests that a continued slow but steady decline in activity is likely unless price signals change – something most industry players are not planning for in the short term.
Consistent with this, the EIA again adjusted its production forecast, with its November 2015 STEO now sitting very close to the GCA September 2015 production outlook (see Rig Count Doesn’t So Much Decline … As Plummet!).
Also this week, in their latest monthly oil update, the Paris-based IEA has indicated that it expects U.S. LTO production to fall by 600,000 barrels per day in 2016. This is a higher decline than either GCA or the EIA are currently expecting, although GCA is in the process of updating its model* outlook and will report further on this in early December.
Next week being the Thanksgiving holiday in the U.S., the Oil & Gas Monitor will not be updated until November 30.
* GCA’s outlook for future LTO production is taken from an in-house model of the Bakken, Eagle Ford and Permian basins. Based on the actual performance data of individual operators, the model has the ability to handle multiple type curves for each, while varying assumptions as to future activity in the context of overall acreage quality and availability.
For more details, contact either of the authors.
U.S. Drilling Activity…..
The U.S. onshore rig count continued its march lower, down 6 this week, with the total number of active onshore rigs now standing at 728, down 1,148 (~61%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total declined to 346 (down 3 last week), with Eagle Ford up 1, Permian down 4 and Williston flat. Horizontal rigs deceased by 10, erasing the gain of the past two weeks.
Total U.S. rig count (including the GOM) declined 9 last week, with rigs targeting oil decreasing by 9 for a 12-week total decline of 110.
The economics of LTO at this pricing point, coupled with financing constraints, suggests that a continued decline at around this rate is likely unless price signals change – something most industry players are not planning for in the short term.
WTI temporarily fell below US$40 for the first time since August on Wednesday after U.S. data showed a smaller than forecast build in crude inventories, before closing at US$40.21, down 53 cents, or just over 1%, on the week. Since the beginning of August, WTI has traded at plus or minus US$45 per barrel, with no sign yet of a break-out of a band US$5 either side of this.
Brent, the global benchmark for oil, was up 60 cents, or 1.4%, at US$44.42 a barrel.
U.S. Supply and Demand…..
U.S. crude oil refinery inputs increased to an average over 16.1 million barrels per day, with refineries at 90.3% of their operating capacity last week. With slowly but steadily declining LTO production, and in the context of an export ban on crude and the long-run level of imports, there is no longer routine pressure on storage from domestic production. Therefore, absent seasonal or operational issues, the change in storage draw reflects whether or not it is seen to be cheaper to purchase additional “cheap” imports and temporarily add to storage, or draw down some of that previously “cheap” oil.
U.S. crude imports averaged 7.0 million barrels per day last week, a decrease of 409,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.1 million barrels per day, inline with the same period last year.
Crude oil inventories increased overall by 0.3 million barrels from the previous week. Eight straight weekly increases have boosted stockpiles, which are now close to the record 490.9 million barrel level seen in April 2015.
Balancing all these data points suggests that U.S. oil production was relatively flat week on week, down just 11,000 barrels per day with expected higher declines from LTO being largely offset by increases from the Gulf of Mexico.
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