24th August 2018
Oil Drilling Activity
Onshore US drilling activity decreased by 9 with a total active count of 1025 rigs; those targeting oil decreased by 9, with the total at 860. Across the three major unconventional oil basins, the oil rig count decreased by 5 to 606, with Permian down 1, Eagle Ford flat and Williston down 4.
EIA reported last week’s total US domestic crude output at 11.0 million barrels a day, an increase of 100,000 barrels from the previous week and matching the peak levels reported in mid-July 2018. The EIA data continues to show a 0.25 to 0.3 million barrels a day discrepancy between their weekly and monthly output figures (weekly is higher).
Natural Gas Liquids production hit a new peak of 4.34 million barrels a day in July, with all fractions showing year on year growth, led by Ethane.
Despite record refinery runs and lower exports, distillate inventories in the US have declined because consumption has outpaced the rate at which inventories were replenished.
Today, Fed watchers will be listening for anything Federal Reserve Chairman Jerome Powell has to say about financial turmoil in emerging markets, the economic threats posed by the growing trade war launched by President Donald Trump and Trump's criticism of the Fed's recent interest rate hikes.
Natural Gas – GCA’s update for Federal Government on LNG
This week, GCA provided its regular update for Federal Government representatives, keen to understand more about the natural gas and LNG business. Over the last two years, there have been some noteworthy changes in how these meetings go, perhaps the greatest of which is that these days, almost everyone involved in US foreign policy, economic policy, or even defense, is relatively well informed about the goings on in the global gas sector. No longer are there questions about what LNG is, and how it differs from natural gas; now the questions have moved on to the relative benefits of FSRUs versus land-based facilities, the prospects for smaller scale LNG, and whether or not gas and power competitive markets will emerge in Japan. Awareness and understanding of the global gas trade at the highest levels of government seems to be a feature around the world, these days.
The promotion of natural gas, such that it enjoys a similar status to crude oil, is mainly of course due to the role that pipeline exports and LNG are now playing in global trade, and trade balances.
As if brushing off the recent tariff rows and the spectra or adding additional economic burdens to LNG export projects already under pressure, this week has seen a series of positive announcements: Train 2 at Novatek’s Yamal plant loaded its first carrier several months ahead of schedule; the Golar FLNG unit in Cameroon now in full production; Excelerate’s FSRU is commissioned in Bangladesh; and, KOGAS has announced a US$9 billion expansion of LNG re-gas capacity.
LNG is the fastest growing energy sector globally, and with the added interest it is attracting from investors, traders, and governments around the world, it seems set to stay that way.
Crude Oil – Trade tensions holding down prices
The International Energy Agency warned that “trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand” (“Oil Market Report,” IEA, Aug. 10).
Oil prices have stalled over the last two months as the prospect of tough sanctions on Iran’s exports from November is offset by concerns about a slowdown in global economic growth. Brent futures prices for crude delivered in 2019 have been flat since late May, after rising strongly since February.
The US government estimates Iran’s oil exports will be cut by between 0.7 and 1.0 million barrels per day from November as a direct result of sanctions. However, the prospective loss of crude has failed to lift prices significantly as traders’ focus on compensating increases in production from Saudi Arabia and Russia, as well as slower growth in consumption.
Brent’s six-month calendar spread has slumped from a steep backwardation in April and May into a contango structure as traders anticipate more oil availability. Some of the shift stems from the big increase in production by Saudi Arabia and Russia that started in late May and June, which should help build up stocks ahead of the re-imposition of sanctions. However, it also coincides with a weakening of the global economic outlook that suggests slower growth in consumption of diesel and other refined products later this year and into 2019.
IEA reported muted global crude demand growth in Q2 and into Q3 2018 but it is expecting a rebound in Q4 resulting in annual demand growth for 2018 of 1.4 million barrels a day. They expect up to 1.5 million barrels a day growth in 2019, but caveat that if oil prices rise in H2 2018 as a result of supply disruptions then such growth may evaporate.
Total US rig count (including the Gulf of Mexico) stands at 1044, down 13 this week. The horizontal rig count stands at 919, down 3 this week. US rig activity has shown little growth for 12 of the last 14 weeks and is up 11% above last year’s total.
Compared to a November 2014 figure of 1,876 active rigs, the current level is just above 50% of the 2014 high.
Crude Oil Price
Brent, the global benchmark for oil, increased US$3.42 to US$75.78 a barrel, reflecting a gain of 4.73% on the week.
WTI crude rose US$2.66 to US$68.87 a barrel, up 4.02% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 17.9 million barrels per day, with refineries at 98.1% of their operating capacity last week. This is 389,000 barrels per day less than the previous week’s average.
US gasoline demand over the past four weeks was at 9.5 million barrels, down 1.5% from a year ago. Total commercial petroleum inventories decreased by 2.5 million barrels last week.
US crude imports averaged 7.5 million barrels per day last week, down by 1,496,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 8.1 million barrels per day, 2.2% less than the same four-week period last year.
US crude exports averaged 1.155 million barrels per day last week, a decrease of 437,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.477 million barrels per day, 83.3% more than the same four-week period last year.
Crude oil inventories decreased 5.8 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 0.8 million barrels; total stored is 24.2 million barrels (~27% utilization).
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