22nd January 2016
The onshore rig count decline of 16 this week, a decline of 50 in 2016 alone, and a decline of 137 in the past three months, highlights the extreme pressure that the latest fall in oil prices is having on U.S. activity. Rigs targeting oil declined 5 this week (23 in 2016 and 79 in the past three months). U.S. LTO operators continue to focus on their very best areas to drill and laydown rigs in small bites weekly, with at least one significant operator announcing this week that it does not plan any wells at all in 2016.
With oil prices this week hitting levels last seen in 2003, Friday’s rise back above US$30 per barrel looks like a positive ray of sunshine. However, the sense in the market at the moment is not to trust any gain until it appears well baked in, and downward activity pressure looks like it is set for a while yet. With Iran back in the market, and key OPEC producers reaffirming their “no intervention” strategy, the bears have the high ground right now. “Unless something changes, the oil market could drown in oversupply,” the IEA said in its latest monthly oil report released Tuesday.
The total number of active onshore rigs now stands at 608, down 1,268 (~68%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total declined to 303 (down 7 last week) with Eagle Ford and Williston down 2 and Permian down 3. Horizontal rigs lost 11 and now stand at 500, down 729 year to date.
Total U.S. rig count (including the GOM) declined 13 last week, with rigs targeting oil down 5 for a 21-week total decline of 164. The average decline stands at a little less than ~8 rigs per week. Rigs targeting gas declined 8 as continuing warmer than expected weather impacts natural gas demand.
The fundamentals of over-supply remain and so there is no reason to believe that the oil price crash will turn at this point. Seasonally, demand for oil is always weak in the first and second quarters. This alone will work against price recovery in the near term.
Brent, the global benchmark for oil, was up US$1.94 at US$31.32 a barrel, increasing 7% on the week.
U.S. crude rose US$2.05 to US$31.54 a barrel, up 7% on the week.
U.S. Supply and Demand…..
U.S. crude oil refinery inputs deceased to an average 16.2 million barrels per day, with refineries at 90.2% of their operating capacity last week. This is on trend with the 2015 decline as refineries enter seasonal maintenance.
On the supply side, EIA data indicated that U.S. oil production in the Lower 48 deceased by 3,000 barrels per day last week, with total production at 8.703 million barrels per day.
U.S. crude imports averaged 7.8 million barrels per day last week, a decrease of 409,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, ~10% above the same four-week period last year. As we move into 2016 and U.S. production declines, imports should remain elevated relative to 2015 levels.
Crude oil inventories increased ~4 million barrels from the previous week, the stock change being driven by imported oil and decline in refinery input demand. Cushing’s storage (the main price point for WTI) increased by 0.2 million barrels, taking the total to 64.2 million barrels of crude in storage (~71% utilized), another fresh record high. Cushing has increased for seven weeks straight.
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