13th October 2017
Oil Drilling Activity
Drillers decreased onshore rigs by 6, total stands at 907. Across the three major unconventional oil basins, the oil rig total dropped to 493; rig growth has stalled in the major oil basins reflecting crude prices hovering at the US$50 WTI level. Rigs targeting oil decreased by 5, total stands at 743.
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Crude oil prices over the past three months reflect declining global oil inventories, geopolitical events, and increasing expectations for global economic and oil demand growth. Data suggests that oil supplies are tightening and that higher prices are likely in 2018 and this could return growth to US onshore rigs targeting oil.
Natural Gas – World Bank/IMF Annual Meeting
This week, a host of central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academicians came together at the World Bank/IMF annual meeting in Washington DC to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and of course some of the very material energy related projects that have such an impact on the developing world. GCA was there too, as an invited expert speaker on Natural Gas project finance and commercialization, where the focus of our input was emerging African economies, especially those with access to major gas resources, and the consequent electrification/gasification opportunities that have emerged as a result.
While the conventional thinking has always been to underpin African gas projects with LNG exports, with domestic demand to follow, the huge changes in the global gas sector following the entry of the US as a major exporter in an already oversupplied market, may mean this has to change. The potential for natural gas demand arising directly from African economic growth and power demand is arguably the biggest single hope to drive the kind of demand growth needed to burn all this low cost gas, especially where it displaces fuel oil, or diesel. Egypt is already back on a very strong growth track, in terms of gas demand originating from power, Nigeria remains a strong market, with a number of IPP projects now moving ahead, and of course South Africa has a major initiative underway at the moment, to secure LNG supplies for power generation.
While the carbon agenda, and the challenge from renewables remains a threat to gas, the versatility, dependability and locally sourced nature of many African gas projects will underpin strong growth in the short to medium term, particularly where multi laterals such as the World Bank/IFC are able to underpin project financing with suitably robust structures, and ECA’s are able to step in with additional support. Amid a generally optimistic view on world economic growth from speakers such as Christine Lagarde, overall the prospects for the developing world, electrification and gas-to-power are continuing to look healthy. Perhaps it’s time for the old model for African gas development to be re-examined; underpin with local demand, export whatever is left over.
Crude Oil – Demand recovers and exports remain above 1 million a day
EIA forecasts Brent spot prices to average US$52 per barrel in 2017 and US$54 per barrel in 2018 - US$1 per barrel higher in 2017 and US$2 per barrel higher in 2018 compared with last month's forecast. WTI average crude oil prices are forecast to be US$3.50 per barrel lower than Brent prices in 2018.
The oil industry on the US Gulf Coast began to resume normal operations throughout September after refineries and ports were shut down in late August because of Hurricane Harvey. Gulf Coast refinery utilization reached 86% for the week ended September 29th, down 10% from the week ended August 25th but only 5% below 5-year average utilization for this time of year.
Hurricane Irma, which made landfall in Florida on September 10th, did not significantly affect US crude supply or refining operations, but because of increased evacuation-related demand, tanker truck limitations, and power outages, many retail gasoline stations were out of service.
EIA data indicates that US crude production in September averaged 9.3 million barrels per day, an increase of 250,000 barrels per day from the August average. Following Hurricane Harvey, Gulf of Mexico crude production in September is estimated to have increased to 1.7 million barrels per day, up 70,000 barrels per day from the August level.
The EIA’s STEO for October forecasts total US crude production in 2017 to average 9.2 million barrels per day, down 100,000 barrels per day from last month’s forecast. It expects output in 2018 to average 9.9 million barrels per day, up 100,000 barrels per day from last month’s forecast.
US production is pushing increasing volumes of US crude into world markets, feeding inventories and undermining OPEC’s efforts to tighten the market. US exports fell in the most recent week to 1.27 million barrels per day, but US exports have exceeded 1 million barrels a day for three straight weeks, the first time this has happened.
Oil Drilling Activity
Total US rig count (including the Gulf of Mexico) stands at 928, down 8 this week with rigs targeting oil down 5. The horizontal rig count stands at 782, down 6.
The total number of active onshore rigs decreased to 907(down 6). 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 was down 2, it now stands at 493, with Permian up 1, Eagle Ford down 4 and Williston up 1.
Crude Oil Price
Brent, the global benchmark for oil, rose US$1.40 to US$57.37 a barrel, reflecting a gain of 2.50% on the week.
WTI crude increased US$2.16 to US$51.66 a barrel, up 4.36% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 16.2 million barrels per day, with refineries at 89.2% of their operating capacity last week. This is 229,000 barrels per day more than the previous week’s average.
US gasoline demand over past four weeks was at 9.4 million, up 1.3% from a year ago. Total commercial petroleum inventories decreased 2.9 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production decreased 81,000 barrels to 9.480 million barrels a day. The Lower 48 crude production now stands at 8.977 million barrels per day, down 87,000 barrels per day this week.
US crude imports averaged 7.6 million barrels per day last week, an increase of 403,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.4 million barrels per day, 6.6% below the same four-week period last year.
Crude oil inventories decreased 2.8 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 1.3 million barrels; total storage is 63.8 million barrels (~71% utilization).
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