31st March 2017
The US onshore rig count continued its relentless upward (so far) march, adding 11 this week, now totaling 798 and approximately 90% above the 420 a year ago. While positive for activity, and the highest since the end of 3Q 2015, it is still more than 1,000 rigs down from the heady days of 2013-2014. However, not only will that peak never be achieved again, it is not necessary. Since the crash the industry is getting about 30% more production per rig employed. So, 800 is really closer to 1,200. Thus only 600 more to go ...
Natural Gas – Small is Beautiful
An LNG milestone was reached this week in one of the first examples of supply chain synergies to graduate from the drawing boards of economic scrutiny, financing and construction.
Houston’s Eagle LNG Partners is building a small scale liquefaction plant at Jacksonville that will soon be supplying two 260 ton LNG tanks that were delivered this week to the adjacent port complex. Once successfully installed, these tanks will fuel ships with gas off the grid in quantities much smaller than those to which the LNG industry has been accustomed.
Eagle will be supplying LNG to Crowley Maritime Corp. for its two new Commitment Class container roll-on/roll-off ships. According to the company’s press release the first of these ships, El Coqui, launched in Pascagoula, Mississippi just a few days ago will undergo final completion and be in service later this year.
Crude Oil – US gasoline demand growing slowly
Don’t expect the US. driver to save the market this year – s/he cares about price.
American motorists consumed more gasoline when prices crashed in 2015 and 2016, but the recent uptick in oil prices have caused demand to weaken. There’s a strong correlation between price and gasoline demand and the American auto fleet is becoming ever more efficient with newer models today using less gasoline than older ones. That is also true for trucks and SUVs, which saw record sales last year.
This is likely to lead to a flattening or even a decline in US demand for gasoline, the consumption of which is already down 1.6 percent this year compared to the same period in 2016, pushing up gasoline inventories and weighing in on crude prices.
Given that the market is adjusting, an extension of the OPEC deal may not be the best course to solve pricing decline. Global inventories appear to be coming down slowly, and that is exactly what OPEC aimed for with its deal. An extension in the hopes of higher oil prices could backfire, because if prices rose above US$60 per barrel, US shale recovery could accelerate causing an oversupply situation and putting downward pressure on pricing.
Sources: EIA Weekly Update and GCA analysis
Oil Drilling Activity
Total US rig count (including the Gulf of Mexico) stands at 824, up 15 last week, with rigs targeting oil up 15. The horizontal rig count increased to 685, up 12 last week.
The total number of active onshore rigs increased to 798. When compared to a November 2014 figure of 1,876 active rigs, the current level remains 57% below the 2014 high.
Across the three major unconventional oil basins, the oil rig total increased to 427 (up 4 last week), with Permian up 4, Eagle Ford up 1 and Williston down 1.
Gulf of Mexico and Alaska added 7 rigs, nearly half of the 15 rigs added last week.
Crude Oil Price
Brent, the global benchmark for oil, rose $1.88 to US$52.24 a barrel, reflecting a gain of 3.71% on the week.
WTI crude rose $2.35 to US$50.17 a barrel, up 4.91% on the week.
US Crude Oil Supply and Demand
Sources: EIA Weekly Update and GCA analysis
US crude oil refinery inputs averaged 16.2 million barrels per day, with refineries at 89.3% of their operating capacity last week. This is 425,000 barrels per day more than the previous week’s average.
US gasoline demand over past four weeks was at 9.3 million, down 1.0% from a year ago. Total commercial petroleum inventories decreased by 3.9 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production increased 18,000 barrels to 9.147 million barrels a day. The Lower 48 crude production now stands at 8.626 million barrels per day, up 25,000 this week.
US crude imports averaged about 8.2 million barrels per day last week, a decrease of 0.083 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.0 million barrels per day, 0.7% above the same four-week period last year.
Crude oil inventories increased 5.0 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) was up 1.5 million barrels; total storage is 68 million barrels (~75.6% utilization).
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