15th January 2016
The onshore rig count declined 13 this week. Despite oil tumbling below US$30 a barrel on Friday, rigs targeting oil increased by 2. U.S. LTO operators continue to withstand low prices and focus on their best areas to drill.
While fundamentals generally show that breakeven prices are considerably above current levels, combinations of better economics in the best areas of plays (albeit even these are challenged at sub-US$30 oil prices), and a desire to try and hold teams and operations together for as long as possible (hoping for recovery) keeps activity above where intuitively it should be sitting.
Nonetheless, the ever-declining U.S. rig count should take a bite out of U.S. LTO production this year and the increased level of imports (4-6% above the same four-week period last year) into the U.S. will begin to eat into the global oversupply of crude (see 18 December 2015 Monitor).
Low crude prices continue to attract imported oil into U.S. refineries and the higher cost LTO into storage. Cushing, the main price point for WTI, increased by 0.1 million barrels, taking the December total to 64 million barrels of crude (~70% utilized), a fresh record high.
As the market gains confidence in U.S. LTO production decline, the strength of demand becomes an important factor to balance the market.
U.S. Drilling Activity…..
The total number of active onshore rigs now stands at 624, down 1,252 (~67%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total declined to 309 (down 5 last week) with Eagle Ford down 1, Williston down 2 and Permian down 2. Horizontal rigs lost 8 and now stand at 511, down 742 year to date.
Total U.S. rig count (including the GOM) declined 14 last week, with rigs targeting oil up by 2 for a 20-week total decline of 159. The average decline stands at a little less than ~8 rigs per week. Rigs targeting gas declined 16 as warmer than expected weather continues to impact natural gas demand.
Weakness in the China and the imminent release of Iranian sanctions pushed crude oil prices below US$30 per barrel Friday.
Brent, the global benchmark for oil, was down US$3.56 at US$29.38 a barrel, reflecting a loss of 11% on the week.
U.S. crude slid US$3.28 to US$29.49 a barrel, down 10% on the week.
U.S. Supply and Demand…..
U.S. crude oil refinery inputs decease slightly to an average 16.4 million barrels per day, with refineries at 91.2% of their operating capacity last week.
On the supply side, EIA data indicated that U.S. oil production in the Lower 48 increased by 13,000 barrels per day last week, with total production at 8.706 million barrels per day. U.S. production continues to withstand low price pressure and continued rig decline, adding 68,000 barrels per day over the past five-week period.
U.S. crude imports averaged 8.2 million barrels per day last week, an increase of 678,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, ~4% above the same four-week period last year.
Crude oil inventories increase 0.2 million barrels from the previous week, the stock change being driven by imported oil. Cushing’s storage (the main price point for WTI) increased by 0.1 million barrels, taking the December total to 64 million barrels of crude in storage (~70% utilized), a fresh record high.
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