24th June 2016
The onshore rig count reversed a three week winning trend, falling by 3, although it still reflects a four week gain of 20. Total rig count now stands at 421 and with WTI trading in the US$45-$50 per barrel range over the past 5 weeks; a small dip should not be seen as overly negative.
At current prices operators will be looking to maintain the status quo while taking advantage of “niche” opportunities, while a steadily increasing rig trend can be expected if there appears to be a clear signal that WTI is moving towards $60 per barrel.
U.S. government reported a smaller-than-expected inventory drawdown, a decrease of only 917,000 barrels last week as compared to a 4.9 million barrel drop in the same period last year. It was also smaller than a 1.7 million-barrel drawdown forecast by analysts, and only about a third of the 5.2 million-barrel drop reported the American Petroleum Institute (API).
The discrepancy (against expectations) was driven by a very large weekly incremental increase in imports (3.5 million barrels). U.S. crude oil imports averaged over 8.4 million barrels per day last week as compared to the last four week average of 7.9 million barrels per day; an increase of over 6%.
Certainly the question to be answered; will U.S. imports continue at elevated levels and constrain the drawdown of crude inventory?
If U.S. refinery’s crude demand can be supplied externally with imports; the expected excess crude inventory drawdown could extent much further into 2017 and continue to put downward pressure on crude price.
The surplus of crude oil stocks relative to a year ago grew to 68 million barrels, up from 63.6 million barrels the week ending June 10. Crude stocks sit 33 percent above the five-year average for this period of the year.
Notwithstanding the weak inventory numbers, a large miss against expectations and rather temperate refinery utilization, this week’s update will be positive for crude oil fundamentals over the long term, primarily because of the continued decline in U.S. crude production (a 39,000 barrel per day decline last week).
Sources: EIA Weekly Update and GCA analysis
OPEC reported that its oil revenue plunged by $438 billion to a ten year low in 2015, as increase in export volumes failed to compensate for the historic collapse in global crude prices. OPEC boosted exports by 1.7 percent, maintaining its share of global markets and continued with a policy to squeeze rivals.
On June 26, the Panama Canal Authority, the body that operates the Panama Canal, will inaugurate a third set of locks which will allow for the transit of much larger ships. This is the first such expansion since the canal was completed in 1914. The expanded canal will be able to accommodate ships 1,200 feet long and 160 feet wide, allowing 90% of all LNG carriers to pass. That could prove greatly beneficial to the United States, which plans to export LNG from the Gulf Coast to global markets.
The Canadian Association of Petroleum Producers predicted the country's oil output will reach 4.9 million barrels a day by 2030, up from 3.8 million barrels a day in 2015. The association said that boost will be led by oil-sands supplies, which are forecast to grow by more than 850,000 barrels a day by 2021.
The total number of active onshore rigs decreased to 397, down 1,477 (~78%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total increased to 203 (up 5 last week), with Eagle Ford down 1, Permian up 4 and Williston up 2. The horizontal rig count increased to 325, down 1 last week.
Total U.S. rig count (including the Gulf of Mexico) stands at 421, down 3 last week, with rigs targeting oil down 7 for a 43-week total decline of 336. The average weekly decline rate stayed flat and stands at ~7.8 oil rigs per week.
Oil prices plunged Friday as the U.K.’s vote to leave the European Union in a nationwide referendum triggered a selloff across markets.
Brent, the global benchmark for oil, was down $0.24 to US$48.35 a barrel, reflecting a drop of 0.49% on the week.
WTI crude rose $0.12 to $47.56 a barrel, up 0.25% on the week.
U.S. Supply and Demand
U.S. crude oil refinery inputs averaged 16.5 million barrels per day, with refineries at 91.3% of their operating capacity last week. This is 188,000 barrels per day more than the previous week’s average.
U.S. gasoline demand over past four weeks was at 9.7 million, up 3.9 percent from a year ago.
On the supply side, EIA data indicated that U.S. oil production in the Lower 48 was down 34,000 barrels per day, with total production at 8.155 million barrels per day. The past 22 week decline total stands at 564,000 barrels per day (an average of ~25,636 barrels per week).
U.S. crude imports averaged 8.4 million barrels per day last week, a increase of 817,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, ~13.6% above the same four-week period last year.
Crude oil inventories decreased 0.9 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) saw a decrease of 1.3 million barrels; total storage is 65.2 million barrels (~72% utilization).
Sources: EIA Weekly Update and GCA analysis
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