15th February 2019
Oil Drilling Activity
Onshore US drilling activity decreased 1 with a total active count of 1028 rigs; those targeting oil added 3 (an increase of 0.3%), with the total at 857. Across the three major unconventional oil basins, the oil rig count decreased 6 and stands at 604, with Permian down 5, Williston down 1 and Eagle Ford flat.
EIA reported last week’s total US domestic crude output at 11.9 million, unchanged five weeks running and with oil rig growth turning negative; US production growth looks doubtful in the near term.
BP has just published its 2019 edition of Energy Outlook that contains a range of forecasts of future demand under varying scenarios. Global Oil consumption under its “Evolving Transition” case has peak oil consumption of 104 MMBOPD in 2035 and 2040, OECD demand down 10MMBOPD, Non-OECD demand up 15MMBOPD.
BP’s more radical “Rapid Transition” case says we are at or beyond peak oil demand now, with a decline from 96 MMBOPD in 2017/2020 down to 92 MMBOPD in 2030 and 82 MMBOPD in 2040 with all of the lost demand in OECD countries. Gas consumption continues to grow under both scenarios in both OECD and non-OECD countries, albeit at slower rates than seen over the 1995-2017 era.
“Rapid Transition” has a very steep decline in coal consumption, which with drop in oil demand, ultimately leads to a major drop in Carbon Dioxide emissions as renewable energy has to grow at near 10% compound annual rates to 2040.
US consumer prices were unchanged for a third straight month in January, leading to the smallest annual increase in inflation in more than 1-1/2 years, which could allow the Federal Reserve to hold interest rates steady for a while.
Natural Gas – Atlantic gas snubbed
Although the global LNG sector is a long-term game, which typically attracts only the most patient investors, we have been reminded this last couple of months that a year is a long time when looking at gas prices outside the long-term contracts, which are beginning to represent a larger and larger proportion of the market.
It was little more than a year ago that we were writing about the incentives needed to move LNG from Europe to Asia, where shipping and other costs require an arbitrage of some US$2.50 to drive reloads, especially at the higher freight rates that have prevailed. While those higher freight rates have fallen somewhat, the arbitrage between Pacific and Atlantic LNG markets has fallen much more. For example, NBP and JKM are now trading just a few cents apart, trending toward parity, and until either demand picks up, or supply falters in Asia, the trend seems likely to remain.
Additional volumes coming on in Australia, problems taking more LNG in China (owing to congested re-gas facilities – see our earlier blog on this topic) and faltering demand elsewhere has led to Pacific Supply and Pacific Demand coming into line more quickly than some had anticipated. Signs of this trend include Yamal cargoes being dropped off in Europe, and US LNG also ending up in Europe, which is increasingly becoming the “buyer of last resort” for spare cargoes. LNG deliveries appear to be attracting a growing discount to TTF, and just this last week has seen a 25-30c drop in NBP across the strip.
It is ironic that just as most of the UK energy retailers are attracting the usual bad publicity from rises in their various tariffs, for both gas and electricity, wholesale prices appear to be on a downward trend. The complex ebb and flow of retail and wholesale prices for energy continues to confound many companies in the retail sector, and with the regulatory pressures and oversight growing year by year, it is no wonder that investors are starting to desert this segment, especially in the UK.
Crude Oil - Unsure where crude prices heading
Global oil prices extended gains, taking Brent crude to a fresh three months high, after data indicating a steep rise in US stockpiles followed steeper-than-expected production cuts from key OPEC+ members Saudi Arabia and Russia.
The EIA indicated domestic crude inventories rose by a much-larger-than-expected 3.68 million barrels last week, taking the total to 450.84 million, the highest since November 2017. The IEA indicated that non-OPEC members would pump around an extra 1.8 million barrels per day this year, a 12.5% increase from its previous forecast, but left its global demand growth estimate unchanged at 1.4 million barrels per day.
The global oil market will struggle this year to absorb fast-growing crude supply from outside OPEC, even with the group's production cuts and US sanctions on Venezuela and Iran.
A US Energy Department report forecast US domestic producers would pump a record 12.41 million barrels per day this year, and 13.2 million barrels per day next year, as shale deposits continue to keep drillers active. The value for 2020 broadly matches EIA 2019 outlook, but for 2019, EIA estimates just under 12 million barrels per day.
Reports yesterday from OPEC that suggested January output fell by 800,000 barrels per day, to 30.81 million, as well as hints from Saudi Arabia that March production would slide under 10 million, added upward pressure to prices.
Venezuela's annual crude output has fallen to just 1 million barrels per day -- compared to the more than 11.9 million barrels that are pumped each day in the United States -- as the country's economic crisis prevents key investments to tap the world's biggest proven oil reserves.
EIA data shows the US imported around 514,000 barrels per day from Venezuela last year. Last week, that figure came in at just 117,000 barrels, as overall US commercial crude imports fell to the lowest level since January 1997.
Crude Oil Price
Brent, the global benchmark for oil, increased US$3.36 to US$65.56 a barrel, reflecting a gain of 5.40% on the week.
WTI crude rose US$2.53 to US$55.34 a barrel, up 4.79% on the week.
Total US rig count (including the Gulf of Mexico) stands at 1051, up 2 this week. The horizontal rig count stands at 915, a decrease of 8 this week. US rig activity continues to show constrained growth for 33 of the last 35 weeks and stands 8% above last year’s total. Crude prices continue to keep US shale operators focused on well productivity (i.e., well completion) and operational efficiency over rig growth.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 15.8 million barrels per day, with refineries at 85.9% (a drop of 4.8%) of their operating capacity last week. This is 865,000 barrels per day less than the previous week’s average.
US gasoline demand over the past four weeks was at 9.0 million barrels, up 0.7% from a year ago. Total commercial petroleum inventories increased by 6.5 million barrels last week.
US net crude imports averaged 3.846 million barrels per day last week, down by 0.430 million barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 4.854 million barrels per day, 26.6% less than the same four-week period last year.
US crude imports averaged 6.2 million barrels per day last week, down by 936,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 7.2 million barrels per day, 11.2% less than the same four-week period last year.
Crude oil inventories increased 3.6 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 1.0 million barrels; total stored is 41.6 million barrels (~46% utilization).
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