U.S. Refinery Input Declines … Crude Oversupply Remains!

U.S. Refinery Input Declines … Crude Oversupply Remains!

16th October 2015

The U.S. onshore rig count continued lower this week, releasing 9 more rigs for an eight-week decline of 99.  With the current decline trend, operators could release an additional 100+ onshore rigs before the end of the year.

U.S. oil prices have more than halved during the past 12 months, while the price decrease of U.S. gas, though significant, was not as severe.  The current Henry Hub price is about 70% of where it was in Q3 2014.  Moreover, gas remains consistently cheaper than oil on a boe-equivalent basis, which reflects the challenges and potential of developing stranded gas resources worldwide.

Source: EIA

With Cheniere LNG preparing to ship its first batch of LNG overseas, U.S. gas production is entering into the increasingly crowded LNG global supply market.  The advantage of U.S. LNG exports lies in an abundant gas supply linked to Henry Hub pricing.  According to GCA’s past analysis on liquefaction and shipping costs, USGC Henry-Hub-based LNG delivery prices can reach Asian, European and the Latin American markets within US$6-10/MMBTU, which is within the range of current LNG landed prices.

Source: GCA Analysis

For more information, contact Nick Fulford – GCA Global Head of Gas and LNG.

U.S. Drilling Activity…..

The total number of active rigs now stands at 754, down 1,122 (~60%) from a November 2014 high of 1,876.  Across the three major unconventional basins, the oil rig total declined to 356 (down 6 last week), with Eagle Ford down 2, Permian down 3, and Williston down 1.  Horizontal rigs decreased by 7, bringing the total number to 591.

Total U.S. rig count (including the GOM) declined 8 last week, with rigs targeting oil declining by 10 for a seven-week total of 80.

Oil Price….

Oil prices are falling further after data confirmed a large addition to U.S. crude stockpiles last week, another sign that a global oversupply of crude is not going away.

West Texas Intermediate, the U.S. benchmark for the price of crude oil, lost 6% this week to trade at US$46.64 per barrel.

U.S. Supply and Demand…..

U.S. crude oil refinery inputs averaged 15.3 million barrels per day, with refineries at 86% of their operating capacity last week.

On the supply side, U.S. oil production in the Lower 48 declined by 79,000 barrels per day last week, bringing total production to 8.606 million barrels per day.

U.S. crude imports averaged 7.3 million barrels per day last week, an increase of 247,000 barrels per day from the previous week.

Crude oil inventories increased by 7.6 million barrels from the previous week; the crude build comes from lower processing of oil in the U.S. as refiners shut down for maintenance after the peak summer driving season.

Source: EIA Weekly Update and GCA Analysis

The low refinery runs will continue and crude inventories are expected to rise significantly over the next several weeks.  At 468.6 million barrels, U.S. crude inventories remain above historical levels.

Total U.S. TLO production is expected to fall 93,000 barrels per day, according to the EIA’s monthly drilling productivity report.  That is the largest monthly forecast decline since data was available in 2007. 

Authors

U.S. Refinery Input Declines … Crude Oversupply Remains!

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
U.S. Refinery Input Declines … Crude Oversupply Remains!

Bob George

Regional Director: Americas - bob.george@gaffney-cline.com

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