20th May 2016
The onshore rig count declined this week, down 4 (1%). Crude price struggle to break above $50 per barrel; rigs maintain their decline.
Wildfires in Canada have shut down some oil sands sites and reduced Canadian production by at least one million barrels of oil a day, or about 40% of the country's total oil sands output. It is estimated that crude production in Canada would drop by 860,000 b/d in May; in the short term, Canada can draw down its crude oil inventories to supply its customers - the largest being the U.S. refineries.
If Canadian production is shut in for any extended period of time, it will likely affect U.S. imports which have been averaging ~7.8 million barrels per day in 2016. The EIA latest estimate of U.S. crude stocks is 541.3 million barrels, about 180-190 million above the normal range. If the U.S. reduced its imports (from Canada)by 1 million barrels per day, it would still take six months just to get back down to normal crude inventories.
Total crude supply disruptions (Canada, Nigeria, Libya and Venezuela) are estimated to be on the order of 2.5 million barrels per day, putting the market into or close to deficit for the first time in more than two years. Although these disruptions are (expected to be !) temporary, draining excess crude inventory sooner rather than later could help firm crude prices.
Crude output in the U.S. has fallen more than 400,000 barrels per day since the start of 2016 and 500,000 barrels per day from its 9.7 million barrels per day peak 13 months ago.
The physical rebalancing of the oil market is taking hold and price is indicating that the markets are aware.
The total number of active onshore rigs now stands at 380, down 1,496 (~80%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total increase to 187 (up 3 last week), with Eagle Ford flat, and Williston down 1, and Permian up 4. The horizontal rig count is now 314, down 1 last week.
Total U.S. rig count (including the Gulf of Mexico) stands at 404, down 2 last week, with rigs targeting oil flat for a 38-week total decline of 348. The average weekly decline rate is steady at ~9 rigs per week.
Oil prices increased slightly, driven by continued gains in demand for refined products such as gasoline and other fuels.
Brent, the global benchmark for oil, was increased by $0.85 to US$48.76 a barrel, reflecting a gain of 1.8% for the week.
WTI crude grew $1.55 to US$48.23 a barrel, up 3.3% on the week.
U.S. Supply and Demand
U.S. crude oil refinery inputs averaged 16.4 million barrels per day, with refineries at 90.5% of their operating capacity last week. This is 192,000 barrels per day more than the previous week’s average.
U.S. gasoline demand over past four weeks was at 9.6 million, up 5.7 percent from a year ago.
On the supply side, EIA data indicated that U.S. oil production in the Lower 48 was down 30,000 barrels per day, with total production at 8.285 million barrels per day. The past 17 week decline total stands at 434,000 barrels per day (an average of ~25,529 barrels per week).
U.S. crude imports averaged 7.7 million barrels per day last week, an increase of 22,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, ~8.8 % above the same four-week period last year.
Crude oil inventories increased 1.3 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 0.5 million barrels, pushing total storage to 68.3 million barrels (~90% utilization).
Sources: EIA Weekly Update and GCA analysis
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