30th October 2015
The U.S. onshore rig count continued lower this week, down 10, while horizontal rigs declined by 30, leaving about 40% working from a year ago.
23 Oct 2015 - U.S. Onshore Drilling Productivity Slows ... Onshore Rig Release Slows Too!
16 Oct 2015 - U.S. Refinery Input Declines … Crude Oversupply Remains!
09 Oct 2015 - Oil Rig Decline Continues ... Beware of Oil’s “Dead Cat Bounce"!
U.S. imports of foreign oil are rising again after a long decline, as low oil prices continue to force domestic producers to scale back their drilling programs.
The OPEC current strategy to continue pumping despite plummeting prices is resulting in a claw-back of market share ceded to U.S. operators in Texas and North Dakota. U.S. crude imports declined 20% between 2010 and 2014 due to the domestic energy boom created by high prices and technology advancements. Total oil imports rose for three straight months between April and July, a total of 1.7%, according to EIA data. However, imports of light crude grew more rapidly, from 5.6% of total imports in April to 11% in July, as a result of the demand gap created by the decline in LTO production.
U.S. LTO production declines are taking hold and with WTI oil prices below US$50 per barrel, there is no end in sight; lower for longer is the market expectation. U.S. oil production peaked in April at 9.6 million barrels per day and, since then, oil imports have started to move up, jumping more than a half million barrels per day. The structural adjustments to the U.S. crude oil supply looks set to continue well into 2016 and even perhaps into early 2017.
In the past four years, WTI’s discount to Brent has been about US$10 per barrel; today, it is below US$3 per barrel, and WTI could even trade above Brent at times in 2016 as U.S. LTO production decline continues and refinery input demand remains strong.
U.S. Drilling Activity…..
The rig count is a key indicator used to anticipate U.S. production trends. Other factors include completing previously drilled wells and the rising well efficiency/productivity. Fewer working rigs will translate into lower future production.
The total number of active onshore rigs now stands at 742, down 1,134 (~60%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total declined to 349 (down 4 last week), with Eagle Ford and Williston each down 1 and Permian down 2. Horizontal rigs declined 30, the largest single week decline this year, although this was partially offset by an increase in the number of directional wells being drilled.
Total U.S. rig count (including the GOM) declined 12 last week, with rigs targeting oil declining by 16 for a nine-week total of 97.
Oil prices were mixed Friday, failing to build on a midweek rally that has fizzled amid continued concerns over the oversupply of crude. On Wednesday, the benchmark U.S. oil price soared 6.3%, its largest gain in two months.
U.S. Supply and Demand…..
U.S. crude oil refinery inputs increased to an averaged 15.6 million barrels per day, with refineries at 87.4% of their operating capacity last week.
On the supply side, U.S. oil production in the Lower 48 remained flat last week, with total production at 8.607 million barrels per day.
U.S. crude imports averaged 7.0 million barrels per day last week, a decrease of 439,000 barrels per day from the previous week.
Crude oil inventories increased by 3.4 million barrels from the previous week; the crude build continues from lower processing of oil in the U.S. as refiners shut down for maintenance after the peak summer driving season.
Cushing’s storage, the main price point for WTI, declined by 0.8 million barrels per day, confirming that refinery input demand is increasing.
As refinery demand returns from seasonal maintenance, U.S. supply and demand, existing 2015, is expected to be balanced at a crude input rate of 16.1 million barrels per day and the large stock builds seen in first quarter 2015 should not occur. However, with demand growth remaining uncertain in China and the U.S., WTI price response could be range-bound until crude supply decline is confirmed by historic production data.
The low refinery runs are diminishing and crude inventories are expected to remain flat to small increases, existing 2015. At 480 million barrels, U.S. crude inventories still remain above historical levels.
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