Warm Holiday Wishes and a Brief look at 2016/2017

Warm Holiday Wishes and a Brief look at 2016/2017

23rd December 2016

The onshore rig count increased 13 again this week, bringing the total to 628, down less than 10% on the 676 a year ago.

A look back at key 2016 facts and events:

  • WTI price hit bottom in mid-February; US$26.19
  • In February, the US Lower 48 became an LNG exporter for the first time since an experimental cargo from Lake Charles to the UK in 1957
  • Natural Gas fell to US$1.60 in March
  • U.S. oil rigs hit bottom mid-May; 316 rigs
  • U.S. oil in commercial storage peaked in mid-May: 537 million barrels
  • U.S. crude production bottomed 4th quarter; ~8.5 MMbopd
  • U.S. refinery average crude input demand; increased 128 Mbopd (up 0.08%) to 16,228 Mbopd…low price increased demand
  • OPEC and Non-OPEC producers confirm agreement in mid-December; ~2 MMbopd cut
  • Libya and Nigeria exempt from cuts: Increase 2017 exports ~ 300 to 700 Mbopd
  • President Obama blocks drilling in Artic and Atlantic oceans
  • Natural Gas ended the year over twice its March low, peaking at US$3.80 on December 7

A look forward at key 2017 signals:

  • OPEC and non-OPEC compliance with production cuts; ~ 2MMbopd ….
  • … Watch U.S. crude import levels and U.S. production trend; Imports lower and production flat will pull crude stock down
  • U.S. refinery average crude input demand; forecast to increase 130 Mbopd (up ~0.08%) to around 16,350 Mbopd….could higher prices dampen demand?
  • U.S. Budget Act of 2015 requires the Department of Energy to sell crude from Strategic Petroleum Reserve to start as early as January 2017; 190 MM barrels total withdrawal, ~20 MM barrels per year (55 Mbopd) over 9 years….downward price pressure?
  • U.S. energy policy under President Trump; Allows more infrastructure projects that reduce crude transport cost and increases wellhead netback….more cash for drillers, thus more drilling?
  • U.S. producers’ response to WTI US$50 to US$60 range; Permian to dominate in 2017 at US$55 per barrel…other basins may need prices to firm above $60 before seeing significant rig increases. 
  • U.S. natural gas exports impact on global price formation; Increasing exports to expand spot market for LNG…. putting further pressure on oil linked contract pricing?

Weekly Recaps

Oil Drilling Activity

The total number of active onshore rigs increased to 628.  When compared to a November 2014 figure of 1,876 active rigs, the current level is approximately 66% below the 2014 high.

Across the three major unconventional oil basins, the oil rig total increased to 333 (up 6 last week), with Eagle Ford up 1, Permian up 4 and Williston up 1.

Total U.S. rig count (including the Gulf of Mexico) stands at 653, up 16 last week, with rigs targeting oil up 13. The horizontal rig count increased to 526, up 14 last week.

Oil Price

Brent, the global benchmark for oil, was up US$0.01 to US$55.16 a barrel, reflecting a 0.02% gain on the week.

WTI crude rose US$1.08 to US$52.98 a barrel, up 2.08% on the week.

U.S. Supply and Demand

Sources: EIA Weekly Update and GCA analysis

U.S. crude oil refinery inputs averaged 16.7 million barrels per day, with refineries at 91.5% of their operating capacity last week. This is 184,000 barrels per day more than the previous week’s average.

U.S. gasoline demand over past four weeks was at 9.0 million, down 3.0% from a year ago. Total commercial petroleum inventories decreased by 11.9 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production decreased 10,000 barrels to 8.786 million barrels a day. The Lower 48 crude production now stands at 8.271 million barrels per day, down 5,000 barrels a day.

U.S. crude imports averaged about 8.5 million barrels per day last week, an increase of 1.1 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, 0.9% above the same four-week period last year.

Crude oil inventories increased 2.3 million barrels from the previous week and remain at historically high levels. The crude stored at Cushing (the main price point for WTI) was down 0.2 million barrels; total storage is 66.3 million barrels (~74% utilization).

Authors

Warm Holiday Wishes and a Brief look at 2016/2017

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
Warm Holiday Wishes and a Brief look at 2016/2017

Nick Fulford

Global Head of Gas and LNG - nick.fulford@gaffney-cline.com
Warm Holiday Wishes and a Brief look at 2016/2017

Bob George

Global General Manager - bob.george@gaffney-cline.com

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