Price Balances Markets

Price Balances Markets

30th June 2017

Oil prices staged a modest recovery this week, with WTI improving six days in a row, its longest upward trend in two months.  This coincided with drillers taking a pause with onshore rigs staying flat at 915, after 23 straight weeks of increases. Onshore rigs now stand 507 above the same period a year ago, 415 of which are targeting oil.

Crude – US crude production declines 100,000 barrels per day

As observed previously, one data point hardly makes a trend; but with the WTI oil price having been below US$50 a barrel for just over a month now, this slowdown is not unexpected. (See the June 9 Monitor.)

Despite the oil price rise this week, the near-term price remains under pressure with Libyan and Nigerian supplies, in particular, continuing to rise, along with the impact from US drilling (even if that takes a breather for a while).

According to the EIA’s data, US crude output dropped (temporary because of tropical storm in GOM) to 9.25 million barrels a day last week, while crude stockpiles rose (caused by refinery input demand drop) by 118,000 barrels to 509.2 million, the first increase in three weeks. Market analysts had expected inventories to decline and production to increase; both most likely are one-off events.

Natural Gas – China a slow burn, but a big prize!

This week, GCA co-hosted a gathering of invited guests in London to talk about China and what the future might hold from a gas perspective.  With gas producers, investors and customers all waiting to hear what the next step will be in the country’s journey to a fully unbundled gas market, there is a lot of anticipation on the matter.  However, this is somewhat jaded by many years of regulatory and government good intentions, with less to show in terms of practical impact.

China has one of the smallest levels of gas penetration of any populous country, and the good news story is one of record levels of new connections for most of the local distribution companies who are adding record numbers of new customers.  This is in no small part because of an effective government incentive that has at its core a vision to switch households away from polluting coal, with all the damaging implications that are now well understood by the country’s city dwellers.

Gas fired power growth of 30% year-on-year underpins the government’s current 5-year plan, though a number of stakeholders present at the gathering pointed out that installed capacity is relatively meaningless, given the very low utilization that is holding back many of the existing stations.

With gas imports up 22% in 2016, compared to 2015, and Q1 2017 30% up year-on-year, China seems to have got back into its stride when it comes to gasification.  However, even with this rate of growth and the eastern Siberian route now under construction, imports from Russia still seem to be on a sticky wicket with the westerly route now seemingly uncertain.

From its own engagement with stakeholders in Beijing and Shanghai, GCA is well aware of some of the very significant appetite for investment in gas in China, seen as a bright spot in an otherwise challenging landscape for companies who have ridden the wave of high growth and quick returns of the last few years.  However, gas has never been an investment for those without the stamina to see through projects that have a gestation period of many decades, let alone years, and it seems this continues to be the case in China.

You may also wish to refer to GCA’s previous analysis on the changes in the Chinese gas market.

GCA partnered in the breakfast briefing with Interfax Energy’s Global Gas Analytics team, who have also produced a short summary of the Chinese gas market.

Weekly Recaps

Oil Drilling Activity

Total US rig count (including GOM) stands at 940, down 1 last week, with rigs targeting oil down 2. The horizontal rig count held flat at 792.

The total number of active onshore rigs held flat at 915.  When compared to a November 2014 figure of 1,876 active rigs, the current level remains 51% below the 2014 high.

Across the three major unconventional oil basins, the oil rig total increased to 498 (up 1 last week), with Permian up 1, Eagle Ford and Williston flat.

Crude Oil Price

Brent, the global benchmark for oil, increased US$2.53 to US$47.73 a barrel, reflecting a gain of 5.60% on the week.

WTI crude rose US$2.66 to US$45.34 a barrel, up 6.23% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 16.9 million barrels per day, with refineries at 92.5% of their operating capacity last week. This is 262,000 barrels per day less than the previous week’s average.

US gasoline demand over the past four weeks was at 9.5 million, down 12.4% from a year ago. Total commercial petroleum inventories increased by 0.8 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production decreased 100,000 barrels to 9.25 million barrels a day. The Lower 48 crude production now stands at 8.810 million barrels per day, down 55,000 this week.

US crude imports averaged 8.0 million barrels per day last week, an increase of 140,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 3.0% above the same four-week period last year.

Crude oil inventories increased 0.1 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) deceased 0.3 million barrels; total storage is 60.8 million barrels (~67% utilization).

Authors

Price Balances Markets

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
Price Balances Markets

Ryan Pereira

Principal Commercial Manager, Global Gas and LNG - ryan.pereira@gaffney-cline.com
Price Balances Markets

Nick Fulford

Global Head of Gas and LNG - nick.fulford@gaffney-cline.com

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