24th July 2015
In a week where crude oil prices fell by some US$2.50 per barrel, the total number of active oil and gas rigs showed a significant increase of 19, with those targeting oil increasing by 21. The onshore rig count now stands at 845, down 1,031 (55%) from a November 2014 high of 1,876. While it is always hard to make a call on the basis of a single week’s figures, even though this is the largest week-on-week rig count increase since August 2011, it does pose the question as to whether producers may be reacting to unconventional production starting to decline by increased drilling in an attempt to maintain cash flow. With a number of factors suggesting that any earlier hoped-for firming of the oil price in the second half of 2015 is now less likely, it looks like any activity increase may have jumped the gun and only result in continuing the downward pressure on prices.
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Brent and WTI crude oil prices continued their trend downward this week with Brent hitting US$54.71 and WTI dropping to US$48.39 by the middle of Friday. Nymex WTI oil futures have fallen over 17% this month and have been down in 17 of the past 22 trading sessions, with the prompt month trading below the US$50 a barrel mark for the first time since April 2. While OPEC oversupply may have been priced in by the market, it is very difficult to see any price recovery in the near term with the peak summer demands nearing their end.
Total U.S. oil stocks continue to be far above their five-year highs and overall North American oil production, including exports from Canada, is contributing much of the oil glut. In addition to concerns over sustained U.S. oil production despite falling prices, there are concerns over the high export volumes from OPEC and only limited growth in global oil demand. Canadian production is forecast to continue to grow until 2020 based on projects already under construction, and while U.S. shale production may be starting to show signs of decline, this is still relatively modest at present. Then there is the prospect of Iranian exports starting to come into the market later this year.
Lower crude prices may also be encouraging market players to store oil again with the hope that future prices will rise rapidly enough for economic rents to be earned. Overall oil inventories increased this week by 2.5 million barrels, including an addition of 0.8 million barrels to stocks at the Nymex delivery point of Cushing, Oklahoma. U.S. crude oil refinery inputs averaged 16.9 million barrels per day, 45,000 barrels per day more than the previous week’s average. Refineries are now operated at 95.5% of their operating capacity. U.S. crude imports averaged over 7.9 million barrels per day, up by 587,000 barrels per day from the previous week. Over the past four weeks, crude oil imports have averaged 7.5 million barrels per day, 2.5% above the same four-week period last year.
Across the three major unconventional oil basins, rigs increased by 6, with the Eagle Ford up 2, Permian up 3, and Williston up 1 week-on-week. Rig activity over the past week included the increase of 12 horizontal rigs.
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