8th May 2015
The Baker Hughes U.S. onshore rig count decline continued this week, dropping 11 rigs compared to drops of 27 and 23 for the prior two weeks. The rig count has now declined by 1016 (54%) from a November 2014 high of 1,876, to 860 on 8 May 2015. Rigs active in the Gulf of Mexico remained constant week-on-week at a total of 33 (22 oil focused and 11 gas focused). U.S. crude continued its upward price trend with WTI closing at US$ 59.23 for the week vs. US$ 58.75 last week.
01 May 2015 - U.S. Onshore Rig Count Drops 27; Crude Prices Hit 2015 High
24 Apr 2015 - U.S. Onshore Drops 23 Rigs, GOM Up 1; Storage Builds at Gulf Coast
17 Apr 2015 - U.S. Onshore Drops 34 Rigs, GOM Adds 1; Crude Prices Rally
The EIA reported that oil stocks in the US decreased 3.9 million barrels while Cushing remained constant at 61.7 million barrels.
The EIA analysis of the net oil supply into PADD 1 (U.S. East Coast) shown below indicates OPEC oil is starting to re-enter the East Coast market. According to the EIA analysis of oil delivered by rail, the majority of the domestic oil shown in dark blue is provided by Bakken production, which from EIA data is decreasing monthly due to low oil prices and a slowdown in development activity.
It’s clear from the graph below that at $100 oil that Bakken has been able to push OPEC imported oil out and gain market share. However, what isn’t clear is as Bakken production decreases will OPEC to fill the gap? Recent reports from Bloomberg indicate that current OPEC producers are essentially at peak production (excluding Iran). It is expected that if imports cannot fill the PADD 1 East Coast demand, these barrels would be likely to come out of U.S. PADD 2 (Midwest) storage.
With the rise of U.S. unconventional light, tight oil production, traditional foreign imports to U.S. market have been on the decline over the past 5 years. With U.S. domestic output starting to decline, GCA expects the East Coast to begin buying the cheapest barrels on the market, albeit from U.S. storage, or discounted OPEC surplus looking for a home.
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