18th September 2015
The downward rebasing of the onshore rig fleet continued this week, taking the four-week declining streak to 42 (6 more) and leaving the total number of active rigs at 811, a new low (15 below the mid-2015 level and 18 below that recorded in May 2009). Overall, it is now down 1,065 (57%) from a November 2014 high of 1,876.
11 Sep 2015 - Death by 1,059 Cuts … U.S. Oil Production Really Is Declining!
04 Sep 2015 - Prediction is Very Difficult, Particularly When it Involves the Future
28 Aug 2015 - Another Week this Year Not for the Faint of Heart ...
With U.S. rigs and production continuing to show decline the past three weeks, prices have finally started to take their toll on U.S. operators. U.S. production of oil has now fallen for six straight weeks and is off ~600 Mbpd from the weekly high set in April 2015.
A key point of note is that with the shrinking rig fleet, and focus of activity on better performing areas, the greater the unit impact of taking a rig out of circulation. If the loss (avoided production) per rig is the same as the gain seen in average new well performance, each rig lost now has a 36% bigger impact than this time last year.
U.S. Drilling Activity.....
Total U.S. rig count (including the GOM) declined 6 last week, with rigs targeting oil declining by 8 for a three-week total of 31. Across the three major unconventional basins, the oil rig total declined to 395 (down 1 last week), with Eagle Ford unchanged, Permian up 2, and Williston down 3. Horizontal rigs decreased by 8.
Actual and forecast declines in U.S. production are starting to provide some support to the strip of U.S. crude futures prices. U.S. crude futures have strengthened compared with Brent as the market adjusts to the idea that the U.S. market will be less glutted than previously believed; with the spread between WTI and Brent prices for nearby contracts having shrunk to under US$2.68 per barrel, its narrowest since January, as WTI prices have firmed, down from a gap of almost US$13 in March.
Prices across the week see-sawed somewhat, jumping on the back of the high stock draw, but then falling back Friday on the back of fresh signs the Middle East will continue to prioritize market share over prices; while the U.S. kept interest rates at historic lows on worries over the health of the global economy, ending up close to where they were at the end of last week.
U.S. Supply and Demand…..
U.S. crude oil refinery inputs averaged 16.513 million barrels per day, with refineries operated at 93.1% of their operating capacity last week. U.S. refiners continued to drive growth, with inputs surging 400,000 barrels per day, ending five consecutive weeks of decline. The increase was the result of several refineries coming online after planned maintenance.
Looking on the supply side, domestic production in the Lower 48 came in at just 8.648 MMbpd, down another 35 Mbpd from the 8.683 MMbpd last week and 254 Mbpd off its 2015 daily average of 8.902 MMbpd. Weekly oil production from the U.S. has now fallen for six straight weeks at an average rate of 47 Mbpd per week, a clear indisputable trend. Crude inventories deceased 2.1 million barrels.
As for imports, these were down 270 Mbpd to 7.189 MMbpd from the prior week. Without this decline, oil supplies would have only dropped ~0.21 million barrels. Imports are highly volatile and will vary greatly week over week as an incoming supertanker or two can easily move the numbers.
Global News Stories....
LONDON, Sept. 17 (UPI) -- Small movements in the supply and demand dynamics driving crude oil prices makes trajectory hard to predict, the chief executive at Royal Dutch Shell said.
(Reuters) -- Kuwait's OPEC governor Nawal al-Fuzaia said on Thursday the oil market would balance itself but "we need to be patient," indicating support for the producer group's policy of defending market share despite falling prices.
Oil prices surged after data showed an unexpectedly large decline in U.S. crude stockpiles, raising expectations that a lingering supply glut is about to ease.
Leading economists, including former Treasury secretary and former Obama economic policy director Lawrence Summers, say that lifting the export ban makes sense and that free trade in oil will promote efficiency as it does in other areas of trade.
Looking ahead, trends are starting to correct the supply side of the oil price equation. The IEA is expecting production in the U.S. to fall ~400 Mbpd next year, the majority of the 500 Mbpd decline for non-OPEC oil supplies. Furthermore, on the demand side, the IEA sees a global increase of 1.4 MMbpd in 2016. While both of these metrics are bullish for oil price, the big variable remains OPEC and, in particular, the Gulf producers thoughts as to what constitutes the best future for them.
The lower prices are doing their job, and U.S. rigs have resumed their decline. What is important to note, though, is that the rigs currently being released should impact future U.S. production more than the same rigs released in 2014.
With U.S. operators now focused on their best areas, average 2015 well production has been improved and, therefore, GCA’s production model indicates that rigs released today would have a greater impact on future production. For example, since August 2014, the average new well coming on stream in the Eagle Ford has increased its initial production by 35%. The mirror of that is that taking rigs out will also cause the avoided production to drop by a larger amount.
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