11th December 2015
Last week, GCA’s unconventional basin model indicated that rig count would have to fall a further 60% for end 2016 LTO production to fall to 3 million barrels per day.
The onshore rig count took a dive this week, down 26, equal to the past three-week decline. With LTO operator capital budgets in 2015 exhausted and their 2016 capital budgets under pressure, the latest oil price decline must seem like the thrust of a dagger through the heart. While it may be argued that the cuts being made are helping to bring forward that point in time when global supply and demand come into balance, given the recent and future near term increases in OPEC production, that point still seems a long, long way away.
According to OPEC's latest monthly report, the cartel's total production rose last month by 230,000 barrels a day from October (now 31.695 million barrels a day), driven mainly by record output from Iraq. November's total output is almost 900,000 barrels a day, more than the estimated demand for OPEC crude next year. OPEC last pumped more crude in April 2012, when its production was 31.7 million barrels a day.
U.S. Drilling Activity…..
The total number of active onshore rigs now stands at 686, down 1,190 (~64%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total declined to 317 (down 10 last week), with Eagle Ford up 3, Williston down 2 and Permian down 14. Horizontal rigs lost 15 and now stand at 554.
Total U.S. rig count (including the GOM) declined 28 last week, with rigs targeting oil decreasing by 21 for a 15-week total decline of 150. The average decline per week stands at 10 rigs.
Crude oil prices took a battering all week after the OPEC meeting last week and the news this week, reporting higher-than-expected monthly output, pushing prices to seven-year lows.
Brent, the global benchmark for oil, was down US$4.94 at US$38.23 a barrel, reflecting a loss of 11% on the week; with WTI sliding US$4.18 to US$35.83, down 10%, and no end in sight to the fall for either.
U.S. Supply and Demand…..
U.S. crude oil refinery inputs averaged 16.7 million barrels per day, with refineries at 93.1% of their operating capacity last week.
On the supply side, U.S. oil production in the Lower 48 declined 34,000 barrels per day last week, with total production at 8.639 million barrels per day.
U.S. crude imports averaged 8 million barrels per day last week, an increase of 274,000 barrels per day from the previous week and a level last seen in December 2011. Over the last four weeks, crude oil imports averaged 7.5 million barrels per day, unchanged from the same four-week period last year.
Crude oil inventories decreased by 3.6 million barrels from the previous week. Cushing’s storage (the main price point for WTI) increased by 0.4 million barrels, taking the total 5-week increase to 5.8 million barrels.
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