Onshore Rig Decline Slows ... Storage Business Booming

Onshore Rig Decline Slows ... Storage Business Booming

31st December 2015

The onshore rig count declined this week, down just 3, with Permian adding 5 oil rigs last week.  The average decline over the past 18 weeks stands at 8 rigs per week, an indication that the rig decline rate is diminishing and this may well slow LTO production decline in 2016.

Saudi Arabia continues to pump record amounts of oil in the face of decade-low energy prices, and surplus production continues to find a home in U.S. storage facilities.  With refinery demand expected to weaken, more imported oil is slated for U.S. storage over the next 3-4 months.  Expect to see oil stocks increase into April 2016, after which U.S. summer driving demand should begin to pull down stock levels. 

Source: EIA Weekly Update and GCA Analysis

U.S. Drilling Activity…..

The total number of active onshore rigs now stands at 673, down 1,203 (~64%) from a November 2014 high of 1,876.  Across the three major unconventional basins, the oil rig total increased to 330 (up 4 last week), with Eagle Ford adding 1, Williston down 2 and Permian up 5.  Horizontal rigs lost 5 and now stand at 549, down 787 year to date.

Total U.S. rig count (including the GOM) declined 2 last week, with rigs targeting oil down by 2 for an 18-week total decline of 138.  The average decline stands at 8 rigs per week, an indication that rig decline rate is diminishing, which may slow LTO production decline in 2016.     

Oil Price….

Oil prices headed for a second year of steep losses in 2015, as record OPEC supply created an unprecedented global glut that could take another year to clear.

The return of Iran to the global oil market will add to the oversupply, which has battered prices since last year.  Heavyweight producers, such as Saudi Arabia and Russia, are pumping crude at a fast pace in a bid to defend, and extend, their market share.  Meanwhile, the booming U.S. shale oil industry has slowed somewhat, but production has remained resilient, close to its highest level since the 1970s.

Brent, the global benchmark for oil, was up 19 cents at US$36.98 a barrel, up 1% on the week.

WTI was down 32 cents to US$36.86, down 1% on the week.

U.S. Supply and Demand…..

U.S. crude oil refinery inputs increased to an average 16.7 million barrels per day, with refineries at 92.6% of their operating capacity last week.

On the supply side, U.S. oil production in the Lower 48 increased by 20,000 barrels per day last week, with total production at 8.673 million barrels per day.  U.S. production continues to with stand low price pressure and continued rig decline.  

U.S. crude imports averaged 7.9 million barrels per day last week, an increase of 566,000 barrels per day from the previous week.  Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, 4.7% above the same four-week period last year.

Crude oil inventories increased 2.9 million barrels from the previous week, the stock change being driven by an increase in imported oil.  Cushing’s storage (the main price point for WTI) increased by 0.9 million barrels, taking the December total to 63 million barrels of crude in storage (~70% utilized) and tops the historical peak of April 2015.

Source: EIA Weekly Update and GCA Analysis

 

 

 

 

 

 

 

Authors

Onshore Rig Decline Slows ... Storage Business Booming

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
Onshore Rig Decline Slows ... Storage Business Booming

Signup to receive our latest articles

We're here to help