Analys
Shale oil denial once again?

Price action – Dollar headwinds driving speculators to take money off the table
Equities across the board rebounded 0.7% ydy following the recent North Korea driven sell-off. The USD Index however gained 0.4% on the day which helped to drive all commodity indices lower with the overall Blbrg commodity index down 0.7% with energy losing the most. Brent crude sold down 2.6% closing at $50.73/b while the longer dated Brent Dec 2020 contract only lost 1% closing at $52.62/b.
Since a Brent crude oil price low of $44.35/b in June 21st net long speculative WTI positions have moved in only one direction – up. Since then the number of net long speculative WTI contracts have increased by 156,000 contracts (+42%) or 156 mb. As of Tuesday last week the number of net long speculative WTI contracts stood at 532,000 contracts which was the 7th highest speculative position over the past 52 weeks. Except for the release of the US EIA’s monthly Drilling Productivity report there was little in the news that warranted the 2.6% sell-off in Brent crude oil prices other than speculators taking money off the table following 7 consecutive weeks of rising long bets.
Crude oil comment – Shale oil denial once again?
What puzzles us a lot is graph 2 below. It shows the US EIA’s projection of US crude oil production coming out of Lower 48 states (i.e. ex Gulf of Mexico and Alaska). Thus it basically constitutes US shale oil production even though it includes a million or two of US crude production which is not shale oil as well.
What the the US EIA STEO August report projects is that from January to September the marginal, annualized Lower 48 crude oil production growth has averaged 1.25 mb/d. That we buy into. Then however, from October 2017 onwards their projected growth rate then suddenly collapse to a marginal annualized growth rate of only +0.2 mb/d all to the end of 2018 (on average).
When the US shale oil production was booming from 2011 to 2015 the story was always that yes, production is growing strongly now, but next year it will taper off. The tapering off never happened before the oil price collapsed and all breaks were on. During 2012, 2013 and 2014 the US shale oil production grew relentlessly at an annual pace of 1 mb/d.
Thus even if the market is fully aware of US shale oil these days. Fully aware that rigs are rising and productivity is rising. The story still looks a bit the same in terms of what the US EIA currently is projecting in its August STEO report. Yes, shale oil is growing at a strong marginal, annual pace now, but from October onwards it is all going to slow sharply. Thus shale oil awareness is definitely there but is it again too pesimistic in terms of volumes delivered down the road just as was the case consistently from 2012 to 2014/15. Still some kind of shale oil denial in a way in terms of production down the road.
Yesterday the US EIA released its drilling productivity report (DPR) and its DUC’s report (Drilled wells and uncompleted wells). First out the reports stated a projection that US shale oil production will increase by 117 kb/d mth/mth to September. That equals a marginal, annualized pace of 1.4 mb/d per year. The puzzle is that the EIA projects that this strong growth rate is going to suddenly fall back in October onwards.
What was further revealed was that the number of completed wells per month continued to rise by 25 wells mth/mth to 859 wells in July. Completions were however still trailing way behind the number of wells drilled by more than 200 wells. Wells drilled reached 1075 wells in July which also was an increase mth/mth by 28 wells. Thus completions are rising but are still solidly trailing behind drilling of wells.
For US shale oil production to slow down we first need to see a halt in the number of drilling rigs being added into operation. Only 2 implied shale oil rigs were added last week, but the number is still rising marginally rather than falling. But yes, that part is slowing down. The next step then is to see that completions manage to catch up with drilling. I.e. completions needs to move from a July level of 859 wells completed to at least 1075 wells drilled. Then the last step is that completions start to draw down the now very high DUC inventory which has seen an increase of 1595 wells since November 2016 now standing at 6154 wells.
So during the unavoidable (some time in the future) draw down period of DUCs we need to see that completions move above drilled wells per month in order to draw down the DUC inventory. I.e. the number of wells completed should move above 1075 wells per month unless of course the number of drilling rigs declines. A lower oil price or reduced access to capital is typically the driving forces which would lead to a reduction in drilling rigs. Captial spending and profitability is definitely at the top end of the agenda these days in the shale oil space.
In terms of the DUC inventory build up. In perspective the 1595 wells added since November last year equates to some 5-600 million barrels of additional producible oil within a three year time frame. That is if we assume 350,000 barrels of oil from each well during the first three years of production on average for all wells.
In this perspective it is difficult to understand the US EIA’s projection that US L48 crude oil production growth is going to slow sharply from October onwards. Drilling rigs are still rising (although slowly) and completions still has a lot of catching up to do just to get up to speed with drilling and then some to draw down the DUC inventory.
Not surprisingly we are bullish for US crude oil production for 2018 where we expect US crude oil production to increase y/y by 1.5 mb/d rather than the US EIA’s y/y projecting that US crude oil will only increase 0.6 mb/d y/y to 2018.
OPEC will have a lont on its hands in 2018 and will likely need to manage supply all through to the end of 2018 rather than to end of Q1-17.
(Data for drilling and completions etc in this report were for the regions Anadarko, Bakken, Eagle Ford, Niobrara and Permian and are from the US EIA.)
Ch1 – Net long specs in WTI reached the 7th highest in a year last Tuesday
A strong, long rise in net long spec since the price low in late June
Sideways price action during most of August with no success to the upside when Brent hit $53.64/b.
Then dollar headwinds and North Korea risk aversion. Both pushing specs to take money off the table
Oil prices in graph are averaged over weeks ending Tuesday. Same as specs reporting
Ch2 – US EIA STEO August report projects a sharp slowdown in marginal growth in US L48 crude oil production from October onwards
How is that possible when drilling rig count is still rising and completions are still working hard catching up rising as well.
Ch3 – Completions of shale wells rising as they try to catch up to drilled wells per month which is also rising (US EIA August DUC report)
Today’s level looks unimpressive versus 2014 levels. But they need to be adjusted with productivity improvements
Ch3 – Productivity adjusted – Completions of shale wells rising as they try to catch up to drilled wells per month which is also rising (US EIA August DUC report)
If we productivity adjust the historical data of number of wells drilled and completed with productivity then:
a) Number of drilled wells today per month is 40% higher then the previous peak in September 2014
b) Number of completed wells is 11% higher than the previous peak in October 2014
If completions catches up to current drilling then completions will run 40% higher than the previous peak in October 2014 in productivity adjusted terms.
Ch 4 – Strong rise in DUC (uncompleted wells) inventory since November last year
Equating it to oil it has increased close to 600 mb since Nov last year in terms of oil from first three years of production each well
Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking
Analys
Stronger inventory build than consensus, diesel demand notable

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.

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

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.

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

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

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.

1 to 3 months’ time-spreads have fallen back sharply. Crude oil from Russia and Iran may be seeping through the 10 Jan Biden-sanctions.

Brent crude 1M, 12M, 24M and Y2027 prices.

ARA Jet 1M, 12M, 24M and Y2027 prices.

ICE Gasoil 1M, 12M, 24M and Y2027 prices.

Rotterdam Fuel oil 0.5% 1M, 12M, 24M and Y2027 prices.

Rotterdam Fuel oil 3.5% 1M, 12M, 24M and Y2027 prices.

-
Nyheter3 veckor sedan
Belgien gör en u-sväng, går från att lägga ner kärnkraft till att bygga ny
-
Nyheter4 veckor sedan
Fondförvaltare köper aktier i kanadensiska guldproducenter när valutan faller
-
Analys4 veckor sedan
Brent rebound is likely as Biden-sanctions are creating painful tightness
-
Nyheter3 veckor sedan
Prisskillnaden mellan råoljorna WCS och WTI vidgas med USA:s tariffkrig
-
Nyheter3 veckor sedan
Priset på arabica-kaffebönor är nu över 4 USD per pund för första gången någonsin
-
Nyheter3 veckor sedan
På lördag inför USA tariff på 25 procent för import från Kanada, olja kan dock undantas
-
Nyheter3 veckor sedan
Virke, råvaran som är Kanadas trumfkort mot USA
-
Analys3 veckor sedan
The Damocles Sword of OPEC+ hanging over US shale oil producers