January 19, 2018

January 19, 2018

19th January 2018

Oil Drilling Activity

Onshore drilling activity decreased by 3, and now stands at 916. Across the three major unconventional oil basins, the oil rig total increased by 1. US rigs targeting oil dropped by 5, with the total standing at 747. US shale operators continue to show constraint as they hold back from adding oil rigs above 750.  

Source: EIA Weekly Update and GCA Analysis

Natural Gas – More transparency on the way

In a move to bring more transparency to the global LNG market, the Baltic Exchange will start to publish an LNG freight index.  This index will enable a financial market to develop using the same types of swaps and derivatives that the Exchange’s indices facilitate in other more established marine trade.  As with pipeline gas markets around the world, mechanisms to allow gas traders, buyers and sellers to hedge gas transportation, as well as gas price, will undoubtedly be a boost for greater liquidity and transparency in what has been a very opaque feature of the global gas trade.

While the group of ship brokers who will report prices for the index does not include some of the main players in the LNG ship chartering market, the formation of the index is nevertheless another move towards commoditisation of the global LNG trade, which will help enable trades to be put together more easily and more rapidly.

After two months of straight rises in the Asian LNG spot prices, finally there are signs that the pressures on the market are easing.  With imported LNG now more expensive in China, compared to domestically produced gas delivered through the country’s gas pipeline system, and the traditionally price sensitive Indian market also responding to the latest rises, many eyes are now on where prices will stabilize over the next few months.

Latest data on LNG freight has reflected the same bounce in the market, with Tri-Fuel Diesel Electric (TFDE) and Dual-Fuel Diesel Electric (DFDE) propulsion ships now apparently commanding daily charter rates that are approaching a sustainable level, at around US$80,000/day, but it remains to be seen if that too will start to fall away as the winter months pass by.

Source: Internet Research, GCA Analysis

Crude Oil – Nineth straight weekly drop for US crude supplies

US oil stockpiles plunged last week, while production bounced back from a prior dip of 298,000 barrels per day. The EIA indicated that crude inventories fell by 6.9 million barrels, while gasoline stocks rose by 3.6 million barrels. Crude supplies at the Cushing, Oklahoma delivery hub for US crude futures fell 4.2 million barrels in the week, the largest draw since at least 2004.

Wednesday (Jan 17), the American Petroleum Institute, an industry group, reported a 5.1 million-barrel drop in weekly stockpiles, with gasoline stockpiles up 1.8 million.  Analysts had expected a 3.5 million-barrel drop in oil inventories and a 2.7 million-barrel increase in gasoline stockpiles. Total commercial petroleum inventories decreased by 13.8 million barrels last week.

US production rose 258,000 barrels a day last week, nearly recouping the prior week's drop due to cold weather conditions. EIA expects total U.S. crude oil production to average 10.3 million barrels per day in 2018, up 10% from 2017. If achieved, this would be the highest annual average U.S. oil production on record, surpassing the previous record of 9.6 million barrels per day set in 1970. In 2019, EIA expects crude oil production to continue to increase, reaching an average of 10.8 million barrels per day.

Increased production from the Permian region in Texas and New Mexico accounts for most of the projected increase in the US total crude production. EIA also expects a significant contribution to crude oil production growth from the Federal Gulf of Mexico, as new oil-producing projects are slated to come online by the end of 2019. 

Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook

OPEC showed concern about US output growth in its latest monthly oil market report. OPEC indicated in their monthly oil report that US shale producers lowered break-even costs between 2015 and 2017 but expect that service companies are raising rig and labor costs such that break-even prices are beginning to increase. Despite increased costs, OPEC cited a JPMorgan report that expect US shale exploration and production companies could achieve "decent rates of return" at US$60 per barrel even if oil field service costs rose by 15%.

Weekly Recaps

Oil Drilling Activity

Total US rig count (including the Gulf of Mexico) stands at 936, down 3 this week with rigs targeting oil down 5. The horizontal rig count stands at 802, down 3 this week.

The total number of active onshore rigs decreased to 916.  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 oil rig total increased 1; it stands at 512, with Permian up 6, Eagle Ford down 4 and Williston down 1.

Crude Oil Price

Brent, the global benchmark for oil, dropped US$0.51 to US$68.53 a barrel, reflecting a loss of 0.74% on the week.

WTI crude decreased US$0.18 to US$63.22 a barrel, down 0.28% on the week. 

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 16.9 million barrels per day, with refineries at 93.0% of their operating capacity last week. This is 448,000 barrels per day less than the previous week’s average.

US gasoline demand over the past four weeks was at 8.9 million barrels, up 3.9% from a year ago. Total commercial petroleum inventories decreased 13.8 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production increased 258,000 barrels to 9.750 million barrels a day. The Lower 48 crude production now stands at 9.246 million barrels per day, an increase of 267,000 barrels this week.

US crude imports averaged 8.0 million barrels per day last week, an increase of 292,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, 3.7% less than the same four-week period last year.

Crude oil inventories decreased 6.9 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 4.2 million barrels; total storage is 42.4 million barrels (~47% utilization).

   

  

Authors

January 19, 2018

P. Kevin Galvin

Principal Advisor - Sr. Manager Facilities/Cost Engineering Advisor - kevin.galvin@gaffney-cline.com
January 19, 2018

Ryan Pereira

Principal Commercial Manager, Global Gas and LNG - ryan.pereira@gaffney-cline.com
January 19, 2018

Nick Fulford

Global Head of Gas and LNG - nick.fulford@gaffney-cline.com

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