WTI Trades Above Brent ... Oil Rigs Continue to Decline

23rd December 2015

The onshore rig count declined further this week, down 8 and looks to be facing continued pressure into 2016 as operators are forced to reduce capital spending.

Another big week for oil prices!  West Texas Intermediate on Tuesday settled at a premium to its global counterpart Brent crude for the first time in more than five years, and the spread between the two benchmarks is now nonexistent.  GCA first discussed this topic back in October 2015 (U.S. Oil Imports Rise … Rigs Decline 9 Weeks!).

Yet, Cushing’s storage (the main price point for WTI) increased by 2 million barrels last week, taking the total 7 week increase to 8.5 million barrels.

U.S. Drilling Activity…..

The total number of active onshore rigs now stands at 676, down 1,200 (~64%) from a November 2014 high of 1,876.  Across the three major unconventional basins, the oil rig total increased to 326 (up 2 last week), with Eagle Ford flat, Williston down 3 and Permian up 5.  Horizontal rigs lost 5 and now stand at 554, down 796 year to date.

Total U.S. rig count (including the GOM) declined 9 last week, with rigs targeting oil down by 3 for a 17-week total decline of 136.  The average decline stands at 34 rigs per month.  Rigs targeting gas dropped for the second week, bringing the decline over the last two weeks to over 12%.

Market signals continue to force operators to reduce rigs with the downward trend expected to continue into 2016.   

Oil Price….

Oil prices rose Wednesday after industry data showed a surprise decline in U.S. stockpiles, potentially signaling a rare reprieve from the flood of oil still flowing into storage with low prices and a heavy glut.

Brent, the global benchmark for oil, was down 79 cents at US$36.79 a barrel, reflecting a loss of 2% on the week.

WTI rose US$1.79 at US$37.18 a barrel, up 5% on the week.

U.S. Supply and Demand…..

U.S. crude oil refinery inputs increased to an averaged 16.5 million barrels per day, with refineries at 91.3% of their operating capacity last week.

On the supply side, U.S. oil production in the Lower 48 increased by 1,000 barrels per day last week, with total production at 8.653 million barrels per day.  U.S. production continues to with stand low price pressure and continued rig decline.

U.S. crude imports averaged 7.3 million barrels per day last week, an increase of 986,000 barrels per day from the previous week.  Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, 3.4% above the same four-week period last year.   

Crude oil inventories increased by 5.9 million barrels from the previous week, the removal being driven by an unexpected drop in imported oil.  Cushing’s storage (the main price point for WTI) increased by 2.1 million barrels, taking the December total to 62.1 million barrels of crude in storage (70% utilized) and touching the historical peak of April 2015.

Source: EIA Weekly Update and GCA Analysis

Authors

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com