No Free Lunches

27th January 2017

The onshore rig count continued to rise, up 17 this week, posting its 12th increase in 13 weeks; this brings the total to 691, a hundred (~17%) above the 591 a year ago. Shale oil, which is driven by market forces, continues to respond to market price signals. Given the weekly rig count data trend (up), US shale oil explorers expect oil prices to remain firm at current levels.

Previous Weeks

20 January 2017 - Traditional Pillars of Gas Demand fading Rapidly

13 January 2017 - Rigs down - jam now expected tomorrow?

6 January 2017 - Ship Shape in 2017: Older LNG carriers to the rescue

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The Competent Person's Report

Crude Oil -The Battle for Market Share May Not Be Over For Long…..

BP PLC, in its annual statistical review, announced weakening oil demand and plentiful supplies could push low-cost producers of crude to pump hard again. This could reignite the fierce fight for market share that characterized the past two years before big producers came together in November and December to agree to pull output back.

GCA’s analysis indicates that crude prices are likely to continue to mark time for the near term assuming that crude continues to flow without any unforeseen disruptions.

Natural Gas

Two unrelated, but connected, pieces of widely reported news filtered out this week suggesting 2016 ended with some strong future indicators for natural gas.

US LNG exports hit a record in December with an average of 1.6bcf/d (the equivalent of twelve ships) most of which was destined for Asia. Two of those ships went to China. One was sold by BG to CNOOC, the other sold by Engie to Beijing Gas Group.

Coincidentally, those two ships helped to set a Chinese record for imports, some 3.73 million tonnes (the equivalent of 6bcf/d) according to Chinese customs figures. Just under half of those imports came from Australia and another quarter from Qatar.

Contrasting the Chinese imports to US exports, China imported four times as much as the US exported, but looking forward, the Chinese import number represents only about two-thirds of the projected 2020 US export capacity.

The US is rapidly become a force on the global gas stage, and China is rapidly becoming a key consumer. With the new US administration firmly behind gas exports, these December records are likely to set expectations for the next few years.

Weekly Recaps

Oil Drilling Activity

The total number of active onshore rigs increased to 691. When compared to a November 2014 figure of 1,876 active rigs, the current level is 63% below the 2014 high.

Across the three major unconventional oil basins, the oil rig total increased to 377 (up 18 last week), with Permian up 10, Eagle Ford up 6 and Williston up 2.

Total US rig count (including the Gulf of Mexico) stands at 712, up 18 last week, with rigs targeting oil up 15. The horizontal rig count increased to 579, up 20 last week.

Oil Price

Brent, the global benchmark for oil, was down $0.40 to US$55.05 a barrel, reflecting a loss of 0.72% on the week.

WTI crude rose $0.16 to US$52.73 a barrel, up 0.30% on the week.

US Supply and Demand

Sources: EIA Weekly Update and GCA analysis

US crude oil refinery inputs averaged 16.0 million barrels per day, with refineries at 88.3% of their operating capacity last week. This is 421,000 barrels per day less than the previous week’s average.

US gasoline demand over past four weeks was at 8.3 million, down 4.7% from a year ago. Total commercial petroleum inventories increased by 4.0 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production decreased 17,000 barrels to 8.961 million barrels a day. The Lower 48 crude production now stands at 8.432 million barrels per day, flat again this week.

US crude imports averaged about 7.8 million barrels per day last week, a decrease of 0.568 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 4.3% above the same four-week period last year.

Crude oil inventories increased 2.8 million barrels from the previous week and remain at historically high levels. The crude stored at Cushing (the main price point for WTI) was down 0.3 million barrels; total storage is 65.4 million barrels (~73% utilization).