11th November 2016
The onshore rig count decreased 1 this week, bringing the total to 547 compared with 734 a year ago. Rigs targeting oil increased 2, standing at 452, up 42 % (136) since bottoming out six months ago in late May. Rigs targeting gas decreased 2, bringing the total to 115, compared with 193 a year ago.
After last week's dramatic increase in crude oil inventories, this week shows a rather small build with a decline in refined products, driven mostly by lower imports. The EIA’s weekly data indicated an increase in stocks of crude which were offset by a draw down in gasoline and distillate inventories. This follows last week's unprecedented 14.4 million increase in crude oil stocks.
Imports decreased substantially this week compared to the previous one, which contributed to the overall draw down. Gasoline and distillate inventories declined despite the rather large increase in refinery utilization of 190 basis points to 87.1%. This is a bit high for this time of the year, though likely related to last week's massive build in crude oil stocks that should see a build in inventories of gasoline and distillates next week.
Domestic production increased by 170,000 barrels per day. Although a large increase, it is simply a monthly adjustment fitting the data reported in the EIA’s Weekly Reports to the data in the EIA’s monthly Short Term Energy Outlook.
Production in the Contiguous United States (excluding Alaska) increased by 163,000 barrels per day. As mentioned above, the magnitude of the weekly change is simply related to a booking adjustment. However, this does point to a gradual rebound in domestic production.
Sources: EIA Weekly Update and GCA Analysis
While demand growth looks to stay weak, oil producers are pumping out more. The IEA said global supply was up by 800,000 per day in October, hitting 97.8 million barrels per day on record for OPEC’s production and the increased output from Russia, Kazakhstan and Brazil. IEA’s record of OPEC's production last month hit 33.83 million barrels a day, well above the target of 32.5 million-33 million agreed upon this summer.
Non-OPEC production is expected to grow by 500,000 barrels per day in 2017 vs. a drop of 900,000 barrels per day this year.
The supply outlook will worsen if OPEC fails to implement a production cut at its biannual meeting in Vienna on Nov. 30. If no agreement is reached and some individual members continue to expand their production, the market will remain in surplus throughout the year with little prospect of oil prices rising significantly higher.
For the coming weeks, we should expect some noise in the markets as newly elected president Trump releases details about his team and proposed policies. It will be interesting to see how the results of the important OPEC meeting at the end of November will impact politics.
The total number of active onshore rigs decreased to 547. When compared to a November 2014 figure of 1,876 active rigs, the current level is approximately 71% below the 2014 high.
Across the three major unconventional oil basins, the oil rig total increased to 286 (up 1 last week), with Eagle Ford up 2, Permian flat and Williston down 2.
Total U.S. rig count (including the Gulf of Mexico) stands at 568, down 1 last week, with rigs targeting oil up 2. The horizontal rig count increased to 457, down 2 last week.
Brent, the global benchmark for oil, was down $1.27 to US$44.35 a barrel, reflecting a loss of 2.78% on the week.
WTI crude dropped $0.84 to US$43.24 a barrel, down 1.91% on the week.
U.S. Supply and Demand
Sources: EIA Weekly Update and GCA analysis
U.S. crude oil refinery inputs averaged 15.8 million barrels per day, with refineries at 87.1% of their operating capacity last week. This is 369,000 barrels per day less than the previous week’s average.
U.S. gasoline demand over past four weeks was at 9.1 million, down 2.1% from a year ago. Total commercial petroleum inventories decreased by 7.0 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production increased 170,000 barrels to 8.692 million barrels a day. The Lower 48 crude production now stands at 8.175 million barrels per day.
U.S. crude imports averaged about 7.4 million barrels per day last week, a decrease of 1.6 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, ~5.3% above the same four-week period last year.
Crude oil inventories increased 2.4 million barrels from the previous week and remain at historically high levels. The crude stored at Cushing (the main price point for WTI) was flat; total storage is 58.5 million barrels (~65% utilization).
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