12th January 2018
Oil Drilling Activity
Onshore drilling activity increased by 13, now at 920, the highest since last September. Across the three major unconventional oil basins, the oil rig total has a slight increase by 3 in the Permian. US rigs targeting oil increased by 10, with the total standing at 752.
US oil and gas activity gained momentum in the 4th quarter, according to executives responding to the latest Federal Reserve Bank of Dallas Energy Survey. Additionally, the survey noted that WTI oil prices would need to rise above US$60 for US rig count to increase significantly.
Natural Gas – LNG’s global game of chess
The first weeks of 2018 appear to have already captured a trend for the rest of the year, characterized by an increasingly responsive LNG market, and globally mobile cargoes of price responsive gas.
The last Monitor of 2017 majored on the diversion of a cargo of gas that would have gone to China, which instead ended up at the Isle of Grain terminal in the UK. This diversion was in response to very high NBP spot prices that resulted from a combination of events, including disruptions in Europe, storage outages in the UK, and a severe cold snap that sent demand soaring.
Although the brand new ice breaking carrier, Christophe de Margerie, duly discharged its 170,000 cubic meters of Yamal gas at Grain, by the time it arrived the supply panic was over and the cargo’s owner, Malaysian company Petronas, saw yet another opportunity to make money with it, by leaving it stored there for a while.
Sure enough, the “weather bomb” that hit the US over the Christmas and New Year period proved such an opportunity, and so once more, that Yamal gas is on the move, having been re-loaded onto the Gaselys. At the time of writing, the French vessel had just left Algeciras, presumably bunkering, and had just started its transatlantic passage to Boston, where gas prices have been in the US$25/MMBtu range. When the cargo discharges on January 20, it will be the first re-load to be imported into the US since 2015, when another arrived from Spain. Of course, given the challenges involved in moving LNG around, a good portion of that Yamal gas will have boiled off from all that wave motion on the ocean, pumping and evaporation, or been burned as fuel, but at those prices, it seems hardly worth worrying!
However, it has to be recognised that reloading comingled LNG back onto another ship, an undoubtedly complex array of commercial trades, swaps, arbitrage opportunities, and spot charters does not quite amount to a direct flow of Siberian gas to Boston. In spite of that, it is hard to escape the conclusion that this is fundamentally the same gas that left Yamal back in December, amid much ceremony. Who knew what an interesting journey that gas would have, when President Putin himself started the pump that loaded the vessel.
Russian LNG, parked in Britain by a Malaysian trading company, re-loaded onto a French flagged vessel and taken to Massachusetts ... now if that does not truly herald the arrival of a truly global trade in natural gas … it is hard to say what other proof is needed!
Crude Oil – Risk to oil prices is skewed to the downside
Benchmark North Sea Brent crude oil spot prices averaged US$64 per barrel in December, an almost US$2 per barrel increase from the November average and the highest monthly average since November 2014.
The rise in Brent crude oil futures prices likely reflected global oil inventory draws that were estimated to be 0.3 million barrels per day during the fourth quarter of 2017. Prices were likely also supported by the shutdown of the Forties Pipeline in the North Sea on December 11 because of a crack in the pipeline, which remained closed through December 30. A brief pipeline outage in Libya may have also affected waterborne crude oil supplies and contributed upward price pressure.
With respect to crude oil demand, US crude oil refinery inputs reached a record high for the month of December during the week ending December 29, 2017, of 17.6 million barrels per day. Global economic growth and leading economic indicators of manufacturing activity continue to show expansion, which should support crude oil and petroleum product demand in the coming months.
US crude oil production averaged an estimated 9.3 million barrels per day in 2017 and is estimated to have averaged 9.9 million barrels per day in December. US crude production is forecast to average 10.3 million barrels per day in 2018, which would mark the highest annual average production in US history, surpassing the previous record of 9.6 million barrels per day set in 1970. The EIA is forecasting production to increase to an average of 10.8 million barrels per day in 2019 and to surpass 11 million barrels per day in November 2019.
Oil prices have risen more than 13% since early December. Is the market ignoring potential US shale production increases that would exert down pressure on crude prices? Our expectations are for some market tightening in the first part of 2018, a likely decline in demand due to slower economic growth, some OPEC/Russia quota cheating and a rise in US shale oil production. As the market continues to move into balance, potential for supply disruptions impacts on crude prices may well raise.
Oil Drilling Activity
Total US rig count (including the Gulf of Mexico) stands at 939, up 15 this week with rigs targeting oil up 10. The horizontal rig count stands at 805, up 7 this week.
The total number of active onshore rigs also increased to 920. Compared to a November 2014 figure of 1,876 active rigs, the level remains 50% below the 2014 high.
Across the three major unconventional oil basins, the oilrig total has a slight increase by 3 in the Permian while Eagle Ford and Williston remain flat; it now stands at 519.
Crude Oil Price
Brent, the global benchmark for oil, rose US$1.46 to US$69.04 a barrel, reflecting a gain of 2.16% on the week.
WTI crude increased US$1.97 to US$63.40 a barrel, up 3.21% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 17.3 million barrels per day, with refineries at 95.3% of their operating capacity last week. This is 285,000 barrels per day less than the previous week’s average.
US gasoline demand over the past four weeks was at 9.1 million barrels, up 2.5% from a year ago. Total commercial petroleum inventories decreased 5.5 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production decreased 290,000 barrels to 9.492 million barrels a day. The Lower 48 crude production now stands at 8.979 million barrels per day, a decrease of 293,000 barrels this week.
US crude imports averaged 7.7 million barrels per day last week, a decrease of 308,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, 4.3% less than the same four-week period last year.
Crude oil inventories decreased 4.9 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 2.4 million barrels; total storage is 46.6 million barrels (~52% utilization).
- GCA Oil & Gas Monitor
- Latin America
- North America
- Asia-Pacific & China
- Middle East
- Russia & Caspian
- Business of Energy
- Midstream & Downstream
- Gas & LNG
- Meet our Experts
- Project Experience Brochures
- Training Business
- GCA Oil & Gas Monitor: 2019 archive
- GCA Oil & Gas Monitor: 2018 archive
- US Oil & Gas Monitor: 2017 archive
- US Oil & Gas Monitor: 2016 archive
- US Oil & Gas Monitor: 2015 archive
We're here to help
Europe / Africa / Middle East / Russia & Caspian
gaffney-cline & associates