Crude Market Supply and Demand Balance is on the Mend, Despite OPEC Pumping More Oil in April.

Crude Market Supply and Demand Balance is on the Mend, Despite OPEC Pumping More Oil in April.

13th May 2016

The onshore rig count declined this week, down 7 (2%). Although crude price is trending up and closing in on $50 per barrel, LTO operators are being prudent and removed more rigs off the well pads.

U.S. oil prices hit a six-month high, supported by data from the International Energy Agency (IEA) showing tightening supply and strong demand growth.

The IEA has raised its 2016 global oil demand growth forecast to 1.2 million barrels per day (bpd) from its April forecast of 1.16 million. It also noted that output from Nigeria, Libya and Venezuela is down 450,000 bpd from a year ago.

However, the gradual return of Canadian oil sands output and the expectation that prices are nearing levels that could trigger the return of some U.S. light tight oil (LTO) production could put downward pressure on price in the near term.  Expect a fairly quick return (weeks not months) in Canadian oil sands output following disruptions to over 1 million barrels of daily production capacity due to a wildfire.

The U.S. Energy Information Administration (EIA) said on Wednesday that U.S. crude inventories fell by 3.4 million barrels to 540 million barrels last week, and with refinery runs recovering and U.S. LTO production dropping, U.S. crude stocks should begin drawing down steadily from May to August.

The EIA this week indicated that U.S. crude production, which peaked at 9.7 million barrels per day in April 2015, is expected to average 8.6 million barrels per day in 2016 and fall to an average 8.19 million barrels per day in 2017.

OPEC indicated in their April oil report released today that excess crude supply could average 950,000 barrel per day in 2016 if the group continues pumping at their April rate. With Nigeria continuing to have internal country conflict, the latest causing Exxon to declare force majeure and take oil offline today; diminishing crude supply and stronger demand look to bring markets into balance the end of 2016.          

Weekly Recaps

Drilling Activity

The total number of active onshore rigs now stands at 384, down 1,492 (~80%) from a November 2014 high of 1,876.  Across the three major unconventional basins, the oil rig total decreased to 184 (down 6 last week), with Eagle Ford and Williston down 1, and Permian down 4. The horizontal rig count is now 315, down 3 last week.

Total U.S. rig count (including the Gulf of Mexico) stands at 406, down 9 last week, with rigs targeting oil down 10 for a 37-week total decline of 348.   The average weekly decline rate was steady at ~9 rigs per week.

Oil Price

Data showing strong gains in global demand and a year-on-year slowdown in growth in oil production led to a rally in crude oil prices.

Brent, the global benchmark for oil, increased by $2.06 to US$47.91 a barrel, reflecting a gain of 4.5% on the week.

WTI crude increased by $1.61 to US$46.68 a barrel, up 3.6% on the week.

U.S. Supply and Demand

U.S. crude oil refinery inputs averaged 16.2 million barrels per day, with refineries at 89.1% of their operating capacity last week. This is 193,000 barrels per day more than the previous week’s average.

U.S. gasoline demand over past four weeks was at 9.5 million, up 5.1 percent from a year ago.

On the supply side, EIA data indicated that U.S. oil production in the Lower 48 was down 80,000 barrels per day, with total production at 8.315 million barrels per day. The past 16 week decline total stands at 404,000 barrels per day (an average of ~25,250 barrels per week).

U.S. crude imports averaged 7.7 million barrels per day last week, an decrease of 5,000 barrels per day from the previous week.  Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, ~8.4 % above the same four-week period last year.

Crude oil inventories decreased 3.4 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 1.5 million barrels, pushing total storage to 67.8 million barrels (~89% utilization).

      Sources: EIA Weekly Update and GCA analysis

Authors

Crude Market Supply and Demand Balance is on the Mend, Despite OPEC Pumping More Oil in April.

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
Crude Market Supply and Demand Balance is on the Mend, Despite OPEC Pumping More Oil in April.

Bob George

Global General Manager - bob.george@gaffney-cline.com

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