Analys

Market does not care about US shale, but it should. It is now growing as it did in 2014

Publicerat

7 år sedan

den

17 januari, 2018

Yesterday’s US EIA Drilling Productivity Report (DPR) showed that US crude oil production is now growing at a marginal rate of 1.3 mb/d/yr and as strongly as it did in 2014. If we adjust for increased well productivity then completions of wells in December stood 27% above the 2014 average. We estimate that volume drilling productivity rose 23% from 4Q16 to 4Q17. Drilling is still running well ahead of completions and we estimate that the number of rigs could decline by 200 rigs without hurting the current marginal production growth. Unless there is a significant set-back in global oil markets or sentiment or in the US shale space with a drop in completions per month we should see US crude production averaging close to 10.7 mb/d in 2018 thus growing 1.38 mb/d y/y average 2017 to average 2018. In addition comes US NGL’s growth of 0.5 mb/d y/y which will bring total US liquids growth to 1.88 mb/d for average 2017 to average 2018.

Yesterday’s US DPR report showed that shale oil production is growing as strongly now as it did in 2014 when it grew at a monthly rate of 114 k bl/d/mth (1.4 mb/d rate).

The EIA estimates that US shale oil production will grow by 110 k bl/d from Jan to Feb which is a marginal rate of 1.3 mb/d. This is in stark contrast to EIA’s latest monthly oil report which predicted crude oil production from US lower 48 states (ex Gulf of Mexico) would only grow at a rate of 33 k bl/d in 1Q18 and on average only 42 k bl/d through 2018.

Yesterday’s DPR report shows that US shale oil production is growing 160% faster than what the US EIA uses in its STEO report assumptions for 2018 forecast. It shows that the US EIA will have to revise its US crude oil production forecast for 2018 significantly higher. It has revised it upwards in its last four reports. It is far from done doing so in our view.

US shale oil volume productivity growth (new oil per rig in operation) is in our calculations up 23% y/y 4Q17 to 4Q16. This is in strong contrast to EIA’s official productivity measure of zero growth which is not taking account of the huge build-up of DUCs.

Drilling of wells is still running significantly ahead of completions with the inventory of uncompleted wells rising by 156 wells in December. Completions are struggling to catch up. Either drilling will have to fall or completions will have to speed up in order to prevent a further build-up of DUCs. Players should kick out 100 drilling rigs in order to get drilling in line with completions. In order to draw down the DUC inventory they should kick out another 100 rigs more and thus a total 200 rigs while keeping completions at current level. The market should thus not be optimistic on prices due to a decline in US drilling rig count.

Completions of wells rose to (1091) the highest level since April 2015. However, if the number of completions is adjusted for increasing well productivity then well completions in December 2017 came in at the highest level since these data started in Jan 2014 and 27% higher than well completions on average in 2014.

In our view it seems reasonable to assume that US shale oil production will grow at its current speed through 2018 which means a total growth of 1.32 mb/d from Dec-17 to Dec-18. In addition comes a growth of 180 k bl/d from non-shale bringing the total US crude oil growth in 2018 to 1.5 mb/d. This will place US crude oil production at 10.68 mb/d on average for 2018 which is up 1.38 mb/d from 2017 average of 9.3 mb/d. In addition comes a 0.5 mb/d growth in US NGLs bringing total US liquids growth to 1.88 mb/d y/y average 2017 to average 2018.

Chart 1: US shale oil production to a new all-time-high in February
Growing like it did in 2014.

Chart 2: US shale oil production growing as strongly as it did in 2014

Chart 3: The number of drilled but uncompleted wells is still growing briskly
Thus drilling is running ahead of completions. Completions trying to catch up.
Players should kick out 200 drilling rigs in order to draw down the DUCs

Chart 4: US volume drilling productivity is up 23% from 4Q16 to 4Q17 in our calculations
That is very different from the official US EIA drilling productivity measure which does not take account of the shifts in the DUC inventory

Chart 5: Thus US shale oil volume drilling productivity per rig never really declined y/y
Instead it has stayed at a pretty solid level of around +-20% y/y

Chart 6: Today’s drilling rig count is 21% above the average 2014 count in real terms
Adjusting historical rig count with today’s official US EIA drilling productivity
Official US drilling productivity is today 2.6 times as high as it was on average in 2014

Annons

Kind regards

Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking

Relaterade ämnen:bjarne schieldrop seb analys

Nästa

SEB Råvarubrev 23 januari 2018

Missa inte

SEB Råvarubrev 16 januari 2018

Fortsätt läsa

Annons

Analys

Stronger inventory build than consensus, diesel demand notable

Publicerat

3 dagar sedan

den

21 februari, 2025

Redaktionen

Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

Fortsätt läsa

Analys

Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

Publicerat

5 dagar sedan

den

19 februari, 2025

Redaktionen

Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Bjarne Schieldrop, Chief analyst commodities, SEB

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

Fortsätt läsa

Analys

Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

Publicerat

7 dagar sedan

den

17 februari, 2025

Redaktionen

Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.