5th August 2016
The onshore rig count increased for a sixth consecutive week, adding 3, for a ten week gain of 18% (up 67). Rigs targeting oil now stand at 381, up 20% (65) since bottoming out the week of 22 May.
This significant increase in rigs targeting oil will slow U.S. crude production decline within 2-3 months and with the expected improvements in production type curves (higher initial peaks due to longer laterals) could even cause production to start rising again.
The upward movement of rigs shows the fittest shale companies, mainly those with the oiliest land, are surviving at a time when dozens of others are filing for creditor protection. Houston-based EOG raised the number of wells it plans to bring online this year by 30% (350 from 270), and lifted the number of wells it would drill by 25% (250 from 200), while keeping its capital budget flat.
The other side of the coin is the Chapter 11 filings, with more than 40 companies having filed in the first 7 months of 2016 with debts of nearly $50 billion. This number of companies filing is about the same as for the whole of 2015, although debt has jumped by a factor of about 3 with most of this unsecured, and differentiating those with assets in the higher cost basins.
Sources: BHI Rig Count and EIA Weekly Updates
Crude prices had dropped mid-week amid concerns of swelling stockpiles that stand at record highs. U.S. crude oil inventories jumped for the second consecutive week while gasoline stocks took a tumble. Crude oil inventory rose 1.4 million barrels, while gasoline inventories decreased by 3.3 million barrels, the Energy Department reported this week.
The U.S. crude stock fundaments are improving; inventories have increased by an average of 160,000 barrels a day over the last 7 months, compared with an average gain of 373,000 barrels per day over the same period in 2015. With U.S. daily production forecasted to continue declining, July decline was 214,000 barrels per day, and with demand forecasted to increase, the 2H of 2016 should remain in an under supply condition.
Sources: EIA Weekly Updates and GCA Analysis
Consumption of natural gas for power generation (power burn), which has been very high throughout 2016, recently hit its highest daily level on record on July 21, reaching 40.9 billion cubic feet per day (Bcf/d). Total supply of natural gas remained the same as last week; averaging 81.4 Bcf/d. Dry productions grew by 1% over the report week, and were equal to its year-ago level.
The natural gas pipeline flows to the Sabine Pass liquefaction terminal averaged 0.9 Bcf/d for the week ending Wednesday, August 3, 26% higher than the previous week. Pipeline receipts at the terminal reached 1.1 Bcf/d last Friday, as part of testing of the terminal's second train.
Officials at the National Iranian Oil Company hope to launch new upstream contracts within the next six months after the government ratified a new upstream model contract Wednesday. Iran's cabinet signed off a new model oil contract, known as the Iran Petroleum Contract, in the hope it will attract much-needed international investment into the oil and gas sector after international sanctions on the country were lifted earlier this year.
The total number of active onshore rigs increased to 447, down 1,429 (~76%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total increased to 235 (up 10 last week), with Eagle Ford gaining 4, Williston up 1 and Permian up 5. The horizontal rig count increased to 362, up 8 last week.
Total U.S. rig count (including the Gulf of Mexico) stands at 464, up 1 last week, with rigs targeting oil up 7 for a 49-week total decline of 285. The average weekly decline rate now stands at ~5.8 oil rigs per week.
Oil prices stay volatile as the market remains caught between large crude stockpiles and signs of a global rebalancing between supply and demand.
Brent, the global benchmark for oil, was up $1.60 to US$43.90 a barrel, reflecting a gain of 3.78% on the week.
WTI crude rose $0.25 to $41.55 a barrel, up 0.61% on the week.
U.S. Supply and Demand
U.S. crude oil refinery inputs averaged 16.9 million barrels per day, with refineries at 93.3% of their operating capacity last week. This is 266,000 barrels per day more than the previous week’s average.
U.S. gasoline demand over past four weeks was at 9.8 million, up 2.2% from a year ago. Total motor gasoline inventories decreased by 3.3 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production declined by 55,000 barrels to 8.46 million barrels a day as output in Alaska dropped, though it remained flat at 8.033 million barrels a day in the lower 48 states. The past 28 week decline total (lower 48 states) stands at 686,000 barrels per day (an average of ~24,500 barrels per week).
U.S. crude imports averaged over 8.7 million barrels per day last week, an increase of 301,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.3 million barrels per day, ~10.4% above the same four-week period last year.
Crude oil inventories increased 1.4 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) saw a decrease of 1.1 million barrels; total storage is 64.1 million barrels (~71.2% utilization).
Sources: EIA Weekly Update and GCA analysis
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