22nd February 2019
Oil Drilling Activity
Onshore US drilling activity decreased 2 with a total active count of 1026 rigs; those targeting oil down 4 (a decrease of 0.5%), with the total at 853. Across the three major unconventional oil basins, the oil rig count stayed at 604, with Permian, Williston and Eagle Ford flat.
EIA reported last week’s total US domestic crude output at 12.0 million, an increase of 100,000 barrels per day; first increase in five weeks. The EIA data also showed that crude oil inventories rose by 3.67 million barrels last week. That was compared to forecasts for a stockpile build of 3.08 million barrels, after a gain of 3.63 million barrels in the previous week.
The number of Americans filing applications for unemployment benefits fell last week, but the four-week moving average rose to a more than one-year high, suggesting the labor market was slowing down. Slowing economic growth will lead to weakness in fuel consumption, eroding gains for oil prices.
Natural Gas – Hare and the tortoise (take 2)
Just two weeks ago, we wrote in this column about the parable of the hare and the tortoise, the “hare” being the innovative and fast-track Calcasieu Pass export terminal under development by Venture Global, and the “tortoise” being the meticulously planned and executed Golden Pass JV between Qatar Petroleum and ExxonMobil.
It seems the hare has now received a new lease on life from the FERC approval awarded this week, which Venture Global have welcomed, and have said they now plan to move ahead with construction. With its modular, multiple small-scale liquefaction trains, and the factory built nature of most of the plant, Calcasieu Pass will be looked upon my many in the industry as a test. It will be interesting to see if the alternative to the mega-trains, with their economies of scale and efficient drive trains can be matched by the different approach being pioneered by Venture Global.
One of the features that had delayed FERC approval was a dispute on the way in which greenhouse gas emissions would be calculated, an increasingly important feature of the industry these days, and one that is reflected in the newest practice to be created within the Gaffney, Cline & Associates array of advisory services.
By expressing the emissions in terms of a percentage of the US total, it seems all parties were able to compromise, and acknowledge that this remains a key feature of not only the drilling and completions side of the business, but also midstream, and transportation.
Crude Oil – Slowing economic growth
Crude prices rose to their highest level this year on hopes that oil markets will balance later this year, helped by output cuts from top producers as well as US sanctions on OPEC members Iran and Venezuela. Fears over trade talks between the United States and China had helped push oil prices lower, but the market reversed after signs of progress emerged.
Escalating production in the US is a factor that could counteract efforts by OPEC and its allies to rebalance the market. EIA’s data this week indicated that US crude production hit a record high last week of 12.0 million barrels per day. The EIA forecast that US output is set to keep rising based on booming shale oil production.
Oil prices fell below 2019 highs after US data showed a fifth weekly build in crude inventories and record production, while concerns about slowing global economic growth weighed. A global economic slowdown - signs of which emerged late last year - is preventing crude prices from surging beyond highs reached this week.
Crude Oil Price
Brent, the global benchmark for oil, increased US$1.86 to US$67.42 a barrel, reflecting a gain of 2.84% on the week.
WTI crude rose US$2.18 to US$57.52 a barrel, up 3.94% on the week.
Total US rig count (including the Gulf of Mexico) stands at 1047, down 4 this week. The horizontal rig count stands at 916, an increase of 1 this week. US rig activity continue to show constrained growth for 34 of the last 36 weeks and stands 7% 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 15.7 million barrels per day, with refineries at 85.9% of their operating capacity last week. This is 57,000 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 0.4% from a year ago. Total commercial petroleum inventories decreased by 2.5 million barrels last week.
US crude net imports averaged 3.915 million barrels per day last week, up by 0.69 million barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 4.294 million barrels per day, 30.8% less than the same four-week period last year.
US crude imports averaged 7.5 million barrels per day last week, up by 1,312,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 7.0 million barrels per day, 10.5% less than the same four-week period last year.
Crude oil inventories increased 3.7 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 3.4 million barrels; total stored is 45 million barrels (~50% utilization).
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