17th February 2017
The onshore rig count continued to rise, up 13 this week, posting its 15th increase in 16 weeks. This brings the total to 730, approximately 50% (243) above the 487 a year ago. US drillers have added a total of 279 oil rigs in 35 of the past 39 weeks.
US crude oil inventories rose by 9.5 million barrels to an all-time high of 518.1 million barrels last week. This represents a 2% week-on-week rise and a rise of 10% over the past year. The rise in inventories has been driven both by a fall in US refinery demand and high levels of US crude oil imports.
US refinery crude oil demand fell for the fifth consecutive week, by 435,000 (2.7%) barrels per day to 15,458,000 barrels per day.
US crude oil production also fell last week, by 1,000 barrels per day to 8,977,000 barrels per day, representing a decline of 1.7% over the past twelve months. However, US crude oil production is still at the highest level since April 2016, having peaked at 9,600,000 barrels per day in June 2015, and hitting a recent low of 8,428,000 barrels per day in the week ending July 1, 2016—the lowest level since June 2014
The EIA estimates that US crude oil production will average just shy of 9 million barrels per day in 2017, and 9.5 million barrels per day in 2018 (representing a 48-year high), compared to a 2016 average of 8.9 million barrels per day.
In its February Drilling Productivity report, the EIA estimates that US crude oil production will rise in the seven shale regions by 80,000 barrels per day to 4,873,000 barrels per day in March 2017—the largest increase in the last five months.
Natural Gas - Eastern Mediterranean promoted to Premier League
A number of recent events have now effectively conferred Premier League status on the Eastern Mediterranean. BP have completed their $375 million acquisition of a 10% stake in the ENI operated Zohr field, between Egypt and Cyrus. This has also recently become ENI’s largest destination for capital as a result of their fast-track development, with start-up targeted by the end of 2017. Cyprus is finalizing its 3rd licensing round, which includes pending awards to some major gas players, including ENI, Total, ExxonMobil, and QP, adding to Noble’s long standing presence in the Aphrodite development. Lebanon, not to be left out, has just relaunched a licensing round for another 5 blocks, hoping to follow in the steps of Israel’s major gas developments, Tamar and Leviathan.
With these major discoveries there is more than enough gas for some serious infrastructure investment, and ambitious plans are being discussed for an interconnector pipeline linking Israel, Cyprus and Greece, in addition to a proposed sub-sea electricity link. As well as European markets, Egypt’s growing appetite for gas, main as a result of burgeoning power demand, has required the rapid deployment of two FSRUs at Ain Sokhna. These are being used to supplement insufficient indigenous production and, even with gas flowing from Zohr this year, it seems likely that further gas imports will be required.
With Cyprus also currently undergoing a transition to an unbundled electricity market, based on the EU’s Third Directive, the domestic energy market is also undergoing change. Earlier this week, GCA ran a seminar at the Bank of Cyprus in Nicosia, hosted by Cyprus Gas Public Company. The goal was to set out some of the global lessons from wholesale and retail gas and power market reform, and what these insights might mean for the island’s energy future.
Quite apart from Cyprus, the number of gas and power markets abandoning old style regulated pricing, and moving to more market based mechanisms, is gathering momentum worldwide. This includes China, which was also the topic of a GCA article published this week, and Japan , the location for a earlier GCA seminar on energy market reform. This movement is yet another catalyst for changes in LNG contracts and pricing.
Oil Drilling Activity
The total number of active onshore rigs increased to 730. When compared to a November 2014 figure of 1,876 active rigs, the current level is 61% below the 2014 high.
Across the three major unconventional oil basins, the oil rig total increased to 394 (up 2 last week), with Permian up 2, Eagle Ford up 1 and Williston down 1.
Total US rig count (including the Gulf of Mexico) stands at 751, up 10 last week, with rigs targeting oil up 6. The horizontal rig count increased to 614, up 7 last week.
Crude Oil Price
Brent, the global benchmark for oil, was down $1.31 to US$55.47 a barrel, reflecting a loss of 2.31% on the week.
WTI crude fell $0.99 to US$53.07 a barrel, down 1.83% on the week.
US Crude Oil Supply and Demand
Sources: EIA Weekly Update and GCA analysis
US crude oil refinery inputs averaged 15.5 million barrels per day, with refineries at 85.4% of their operating capacity last week. This is 435,000 barrels per day less than the previous week’s average.
US gasoline demand over past four weeks was at 8.4 million, down 5.3% from a year ago. Total commercial petroleum inventories increased by 11.1 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production decreased 1,000 barrels to 8.977 million barrels a day. The Lower 48 crude production now stands at 8.466 million barrels per day, up 6,000 this week.
US crude imports averaged about 8.5 million barrels per day last week, a decrease of 0.881 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.5 million barrels per day, 9.9% above the same four-week period last year.
Crude oil inventories increased 9.5 million barrels from the previous week and remain at historically high levels. The crude stored at Cushing (the main price point for WTI) was down 0.7 million barrels; total storage is 64.6 million barrels (~71.8% utilization).
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