18th March 2016
While the onshore rig count continued to decline, it slowed considerably this week, down 4 (1%). In the three key oil basins (Eagle Ford, Permian, and Williston) the combined trend reversed and increased by 2 oil rigs, raising the question as to whether last week has seen the bottom – for now at least.
11 Mar 2016 - U.S. Crude to Decline to ~8.2 MMBbl/d in 2017; Steep Drop from Record ~9.7 MMBbl/d in April 2014
04 Mar 2016 - U.S. Production and Rigs Decline while Crude Price Trends Higher
26 Feb 2016 - Saudi Arabia’s View ... Only the Strong Survive
If prices continue to increase and show a sustainable trend towards US$60 per barrel, U.S. production from shale producers will start to respond. However, that response is not going to be as rapid as the bulls (and some articles published this week) would suggest.
With the low oil prices seen this year, oil and gas producers have had substantially less capital to invest, which means they employ fewer rigs. No surprise there. However, looking beyond just the number of drilling rigs in active use across the country, there has been employment carnage in energy states that, along with other factors, is likely to slow the response to any oil supply disruption.
A study from Rice University has estimated that the employment impact of putting a drilling rig into service creates 37 jobs immediately and 224 jobs in the long run, once all relevant multipliers are factored in. This process starts with hiring by an oilfield service company and spans all the way to the retail market. And, while the latter may not impact the well site directly, the retail sector is part of the critical infrastructure that sustains the large out-of-area workforce.
Baker Hughes, an oilfield service company, reports that the number of U.S. oil and gas rigs plummeted from 1,811 in January 2015 to just 489 at the beginning of March 2016; down 73%. While this figure is dramatic in its own right, what makes it truly revealing is the full short- and long-term employment impact of rig operation and removal.
Assuming that the study from Rice University holds true, the loss to date of some 1,300 working rigs since January 2015 has taken away almost 350,000 jobs and, as in the mid 1980s downturn, has led to many leaving the industry altogether. Bringing back light tight oil (LTO) production is also going to have to find a way to bring back all, or at least a substantial number, of these jobs, and address the “green hat” (untrained/inexperienced worker) issue as well.
Even without the challenges of ramping up the workforce, GCA’s analysis indicates that bringing back shale production growth will not happen overnight. This analysis is also supported by recent public presentations from ExxonMobil and Chevron that have indicated that they expect it to take 12 to 18 months for shale production to respond to increasing oil price signals.
 Agerton et al., "Employment Impacts of Upstream Oil and Gas Investment in the United States," Rice University, July 28, 2014
 XOM and CVX End of Year Analyst Conference, January/February 2016
The total number of active onshore rigs now stands at 446, down 1,427 (~76%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total increased to 221 (up 2 last week), with Eagle Ford up 3, Williston down 1 and Permian flat. The horizontal rig count is now 369, down 6 last week.
Total U.S. rig count (including the Gulf of Mexico) stands at 476, down 4 last week, with rigs targeting oil up 1 for a 29-week total decline of 287. The average weekly decline rate now stands at ~9.9 rigs per week. With oil prices beginning to show signs of firming, the rate of rig decline could continue to drop.
Oil prices jumped to another big gain Friday, extending a rally that has seen prices rise more than 50% in the last month, putting the market on track for its fourth straight weekly gain.
Brent, the global benchmark for oil, recorded strong gains in powering up to almost US$42.50 per barrel on Friday, before falling back a bit to around US$41.50, still a net gain of US$1.64 a barrel, 4% on the week.
WTI crude rose US$1.82 to US$40.36 a barrel, up 5% on the week.
U.S. Supply and Demand
U.S. crude oil refinery inputs stayed steady at an average of 16 million barrels per day, with refineries at 89% of their operating capacity last week.
On the supply side, EIA data indicated that U.S. oil production in the Lower 48 was down 20,000 barrel per day, with total production at 8.551 million barrels per day. The past five-week decline total stands at 155,000 barrels per day (an average of ~31,000 barrels per week); data that confirms U.S. LTO production is diminishing.
U.S. crude imports averaged 7.7 million barrels per day last week, a decrease of 355,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8 million barrels per day, ~10% above the same four-week period last year.
Crude oil inventories increased ~1.3 million barrels from the previous week. Crude in storage at Cushing (the main price point for WTI) increased 0.6 million barrels, taking the total crude in storage to 67.5 million barrels (~92% utilization of working storage).
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