16th June 2017
While oil price suffered this week (WTI down to under US$45 per barrel, and Brent around US$47), drillers continued their upward march adding 6 onshore rigs, increasing activity for a 22th week in a row and bringing the total to 908. Onshore rigs now stand 510 rigs above the same period a year ago, 410 of this targeting oil.
The International Energy Agency says it expects oil supplies in 2018 to outpace demand despite consumption hitting 100 million barrels per day for the first time. Production in the United States, which is not part of the OPEC deal, has responded to price signals and has increased 10% over the past year to 9.33 million barrels per day. Production growth in Libya and Nigeria and continued rig additions in the US are raising doubts on OPEC's strategy to drain global stocks.
Crude – Supplies Remain Strong
US oil refineries are processing record volumes of crude, hitting 17.3 million barrels per day of crude in the week to June 9, according to the EIA data. Throughput was ~1 million barrels per day higher than at the same point in 2016 and ~2 million barrels per day above the 10-year seasonal average.
Record refinery runs have helped pull down US crude stocks by 24.5 million barrels since the end of March, with inventories drawing down faster and earlier in the year than normal. Despite fears that record processing could result in a buildup of unsold products, stocks of gasoline and diesel have generally moved in line with normal seasonal patterns.
Part of the explanation lies in the strength of exports, mostly to markets in Central America, South America and the Caribbean, where ageing and inefficient refineries have struggled to meet growing demand.
US refineries are increasingly geared towards meeting export demand rather than just domestic supply, exporting 525,000 barrels per day of gasoline in the week ending on June 9, and 1.12 million barrels per day of distillate fuel oil.
Fuel consumption in the US is also now running near-record levels, according to the EIA data. Gasoline volumes hit 9.8 million barrels per day, an increase of roughly 330,000 barrels per day compared with the same period in 2016 and distillate supply averaged 4.1 million barrels per day, significantly higher than in 2016 although still below the record set in 2007.
However, with so much fuel entering the supply chain there must be some risk that either the domestic or export markets will become saturated and this in turn will force refinery input demand down.
Natural Gas – 500 Vessels and Counting
In a timely coincidence this week, as GCA met with a number of LNG ship owners, operators, charterers and lenders in London, the LNG sector finally broke through a key milestone of 500 vessels globally (as of today 504). The breakdown of these vessels also speaks to some of the trends that are shaping the industry. Of the total, only 441 are conventional LNG carriers, with 31 being FSRUs, 27 being smaller, multi-purpose vessels, many involved in the ship bunkering business, and 4 being FLNGs.
This was the third year GCA had been asked to speak about LNG market trends at this gathering, with particular reference to shipping outcomes. Reflecting back over the last few years, difficult ones for the LNG shipping sector, a few key conclusions emerged, as well as some clear trends for the coming years.
The first is that the LNG shipping world, like the LNG sector more broadly, is wondering whatever happened to the long-term commitments that, for many years, set LNG apart from all other hydrocarbon projects. In the same way that 20-year take or pay commitments seem to be rapidly disappearing in the rearview mirror, creating headaches for project financiers, long-term charters appear also to be part of that same departed world. However, financing ships has always been a tough business, and the shipping industry appears to be quickly adapting with new, shorter term loans, although course risks and financing costs can be correspondingly higher.
Secondly, and particularly in Northern Europe and Scandinavia, the marine bunkering business, smaller scale and barge mounted re-gas, and smaller scale LNG carriers appear to be forming the cornerstone of a new LNG fueling sector. Having been borne out of a world of subsidies, grants and other promotional mechanisms, many of these projects now seem to be sustainable on a commercial basis, aided by new technologies and other learnings from some of the pilots that have been operating for some time. The announcement this week that Qatar Petroleum and Shell have formed a global partnership on LNG bunkering infrastructure appears a timely confirmation, if one were needed.
Finally, continued pressure on charter rates, and good availability of LNG carriers, akin to the same easy availability of the natural gas they carry, is maintaining pressure on owners and leading to new, flexible ways of fixing ships. One such example is the BIMO/GIIGNL voyage charter pro-forma that typically involves a simple one trip, fixed price deal to pick up a cargo, move it, and drop it off. Perhaps not so innovative for a crude carrier, but not something the LNG industry is used to.
In spite of these challenges and trends, one thing is inescapable. The single feature that will enable LNG to develop, become more flexible, profitable and sustainable will be ... ships. Ranging from Prelude FLNG, the largest floating object ever built, right down to the small 5,000 cubic meter vessels that fuel their larger cousins, LNG vessels facilitate the rest of the value chain ... and at this rate the next 500 LNG vessels will take a lot less than 50 years to build!
Oil Drilling Activity
Total US rig count (including the Gulf of Mexico) stands at 933, up 6 last week, with rigs targeting oil up 6. The horizontal rig count increased to 782 up only 2 last week.
The total number of active onshore rigs increased to 908. When compared to a November 2014 figure of 1,876 active rigs, the current level remains 52% below the 2014 high.
Across the three major unconventional oil basins, the oil rig total increased to 492 (up 2 last week), with Permian flat, Eagle Ford down 1 and Williston up 3.
Crude Oil Price
Brent, the global benchmark for oil, decreased US$0.47 to US$47.45 a barrel, reflecting a loss of 0.98% on the week.
WTI crude fell US$0.84 to US$44.86 a barrel, down 1.84% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 17.3 million barrels per day, with refineries at 94.4% of their operating capacity last week. This is 29,000 barrels per day more than the previous week’s average.
US gasoline demand over past four weeks was at 9.5 million, down 1.2% from a year ago. Total commercial petroleum inventories increased by 6.8 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production increased 12,000 barrels to 9.330 million barrels a day. The Lower 48 crude production now stands at 8.840 million barrels per day, up 25,000 this week.
US crude imports averaged 8.0 million barrels per day last week, a decrease of 316,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, 7.1% above the same four-week period last year.
Crude oil inventories decreased 1.7 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) deceased 1.2 million barrels; total storage is 62.2 million barrels (~69% utilization).
- GCA Oil & Gas Monitor
- Latin America
- North America
- Asia-Pacific & China
- Middle East
- Russia & Caspian
- Business of Energy
- Midstream & Downstream
- Gas & LNG
- Meet our Experts
- Project Experience Brochures
- Training Business
- GCA Oil & Gas Monitor: 2019 archive
- GCA Oil & Gas Monitor: 2018 archive
- US Oil & Gas Monitor: 2017 archive
- US Oil & Gas Monitor: 2016 archive
- US Oil & Gas Monitor: 2015 archive
We're here to help
Europe / Africa / Middle East / Russia & Caspian
gaffney-cline & associates