Analys

Shale producers ramp up production as pipes to Gulf opens

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6 år sedan

den

13 augusti, 2019

Redaktionen

Yesterday’s report on US shale oil drilling from the EIA was mostly depressing reading for global oil producers. It showed that the completion of wells rose to 1411 wells in July (+19 MoM) and the highest nominal level since early 2015. As a result the marginal, annualized US shale oil production growth rate rose to a projected 1.0 m bl/d in September which was up from a growth rate of 0.6 m bl/d.

Shale oil producers drilled fewer wells (down 31 to 1311 wells) which is consistent with the ongoing decline in drilling rigs which have declined by 124 rigs to 764 oil rigs since November last year. With a productivity of about 1.5 drilled wells per drilling rig in operation this means that close to 200 fewer wells are being drilled today.

Bjarne Schieldrop, Chief analyst commodities at SEB — Bjarne Schieldrop, Chief analyst commodities, SEB

Instead producers are focusing on completing wells. Drilling less and completing more meant that the number of drilled but uncompleted wells declined by 100 wells to 8,108. The DUC inventory is still 2,850 wells higher than the low point in late 2016. This means that producers can continue to throw out drilling rigs while still maintaining or increasing the number of wells completed per month and thus increase production.

The hope has been that the declining drilling rig count which now has been ongoing for 9 months with investors rioting against producers losing money demanding spending discipline, positive cash flow and profits would now start to materialize into a declining rate of well completions as well. This would naturally lead to softer production growth or even production decline.

In the previous report the estimated marginal, annualized production growth rate was only 0.6 m bl/d. We estimated then that it would only take a reduction in monthly well completions of 109 wells in order to drive US shale oil production to zero growth. I.e. it would not take much to drive growth to zero. Well completions per month would only have to decline from 1383 in June to 1274 and voila US shale oil production growth would have halted to zero. That did not happen. Instead the well completion rose to 1411 in July thus driving estimated the marginal, annualized production growth rate to 1.0 m bl/d in September.

Last year we witnessed that the local, Permian (Midland) crude oil price traded at a discount of as much as $26/bl below the Brent crude oil price as production was locked in both Permian and Cushing. So far this year the discount has mostly been varying between -$15/bl and -$5/bl. The writing on the wall for Permian shale oil producers has been that if they accelerated completions and production they would just kill the local price and the marginal value of production.

Now however transportation capacity out of the Permian is rapidly opening up to the US Gulf. The Cactus II (670 k bl/d) from the Permian to Corpus Christi (US Gulf) opened in early August and much more is coming later this year and early next year. As a result the local Permian crude oil price is now only -$3.4/bl below the Brent crude oil price. And even more important is that Permian producers now know that they can ramp up well completions and production without killing the local crude oil price.

Permian producers are moving from an obvious price setter position locally in the Permian to a perceived global oil price taker. Though in fact they will in the end also be the price setter in the global market place if they just ramp up well completions and production.

Our fear as well as OPEC’s fear and global oil producers fear is that Permian shale oil producers now will focus intensely on well completions. They have 3,999 drilled but uncompleted wells to draw down and they can now accelerate production without the risk of killing the local oil price. Well completions are after all equal to production and production is money in the pocket while drilling in itself is only spending.

There were a few positive elements in yesterday’s numbers seen from the eyes of global oil producers. Increased well completion was basically a Permian thing with completions on average declining elsewhere. Productivity of new wells continued to decline. This is counter to the headline productivity numbers from the US EIA. EIA is calculating drilling rig productivity and not well productivity. In addition they are not adjusting for a build or a draw in the DUC inventory. When the number of DUCs is increasing they under estimate drilling productivity and when the number of DUCs is declining they over estimate drilling productivity. They do not specify well productivity though which is declining in our numbers.

Ch1: The local Permian crude oil price discount to Brent crude has rapidly evaporated as the Cactus II from Permian to Corpus Christi has opened up. Now Permian producers can ramp up well completions without the risk of killing the local oil price.

Ch2: Drilling continued to decline but well completions rose to the highest nominal rate since early 2015. When drilling has declined long enough it is clear that well completions will have to decline as well. With a large DUC inventory we do however seem to be far from that point in time yet. The US DUC inventory stood at 8,108 in July, up 2,850 since late 2016.

Ch3: This is driving estimated new production in September up and away from losses in existing production. Thus marginal annualized production growth accelerated to 1.0 m bl/d in September.

Ch4: Marginal, annualized shale oil production growth rose to an estimated 1.0 m bl/d per year. Clearly down from the extremely strong production growth last year of up to 2 m bl/d growth rate. But still up versus last months report of a rate of 0.6 m bl/d per year with hopes then that the rate would decline further.

Ch5: Overall well productivity continued to deteriorate with latest 7 data points all below the average of the previous 7 points. This could be a function of the DUC inventory draw down. When the inventory rose producers took every 10th well and put it into the DUC inventory. It is logical that producers threw the 10% least promissing wells into the DUC inventory. This then led to an overestimation of the well productivity. Now that the DUC inventory is drawing down producers will have a 20% share of less performing wells. Thus further DUC inventory draw should lead to further overall well productivity.

Ch6: US shale oil production growth has slowed. Could it accelerate again now that pipes out of the Permian are opening up?

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Analys

Brent crude is now trading below its nominal 2018-19 average in EUR/barrel terms

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22 timmar sedan

den

25 april, 2025

Redaktionen

Brent crude gained a meager 0.65% yesterday with a close of USD 66.55/b. That was not much given that US equity markets rallied 2% yesterday with Nasdaq now is almost back to its pre ”Liberation Day” level. Brent crude is trading unchanged this morning with little impulse to do anything it seems.

Bjarne Schieldrop, Chief analyst commodities, SEB

Equity markets have gotten a boost along with easing US tariff rhetoric. The Brent crude oil price has however not gotten the same rebound and is today still trading USD 8.5/b lower than its USD 75/b level from 2 April.

Two factors at hand here: Expectations of softer growth and more oil from OPEC+. One is that global growth in 2025 will still take a hit with softer growth and thus softer oil demand growth due to the US tariff-turmoil. Even if rhetoric has eased. The second is that OPEC+ has upped its production plans with a softer market as a result going forward. The latter message to the market happened almost at the same time as the ”Liberation Day” on 2 April.

Spot market still as tight as it was on 2 April. Still, the front-end market is more or less equally tight today as it was on 2 April. The average Brent, WTI and Dubai 1-3mth time-spread is USD 1.4/b today versus USD 1.5/b on 2. April.

The market setup/pricing is thus that the market is still tight, but that surplus will come. Either because global growth will slow due to US Tariff-turmoil or because OPEC+ will add more barrels.

Will OPEC+ resolve its internal quarrels? Worth remembering on the latter is that the latest more aggressive OPEC+ production growth plan is due to internal quarrels over quota breaches by Iraq and Kazakhstan. OPEC+ could potentially ease those growth plans just as quickly if the internal quarrel is resolved.

Brent crude in EUR/barrel is now trading at the nominal level from 2018-2019. That is nominal! Not taking account of any kind of inflation which cumulatively is up 20-30% since primo 2018. The average, nominal Brent crude oil price in 2018-2019 was EUR 59.1/b. The front-month Brent crude oil price is now EUR 58.4/b. And Brent forward 36mth is only EUR 55.5/b and in real terms one could subtract some 5-10% for the next three years from that nominal forward price. Quite sweet for consumers!

Brent has rebounded along with equities (here US Russel 2000 index in orange), but the rebound in oil has become more hesitant the latest days. Brent still trading USD 8.5/b below its pre ”Liberation Day” of USD 75/b

Brent crude forward curves. Today versus 2 April (’Liberation Day’). Still a tight current market but now with expectation that surplus is coming.

The Brent crude oil price versus the average Brent, WTI and Dubai 1-3mth time-spread. The latter is today on par with where it was on 2 April while the Brent 1mth price is down USD 8.5/b.

Brent crude in EUR/b is down to its 2018-2019 nominal price level. Not bad for euro-based oil consumers!!

Yearly averages for Brent crude in EUR/barrel. The Brent 1mth in EUR/barrel is today trading below its nominal average from 2018-2019 of EUR 59.1/b. And 36mth forward Brent is trading at only EUR 55.5/b. And that is nominally both ways. Add in some 20-30% inflation since primo 2018 and 5-10% additional inflation next three years. Think real terms!

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Analys

OPEC+ tensions resurface: Brent slides to $66.6

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2 dagar sedan

den

24 april, 2025

Redaktionen

Brent crude prices have lost the positive momentum seen from Monday evening through midday yesterday. The price initially bottomed out at USD 65.7 per barrel on Monday afternoon, before climbing steadily by USD 3 to USD 68.7 on Wednesday morning. However, that upward momentum quickly reversed course. Brent tumbled nearly USD 3.4, hitting a weekly low of USD 65.3 per barrel before recovering some losses. As of this morning, it trades at USD 66.6 – a reflection of continued and substantial volatility.

Ole R. Hvalbye, Analyst Commodities, SEB

Market fundamentals have largely remained in the background, with tariff rhetoric still dominating headlines. However, yesterday’s drop was clearly driven by the supply side of the equation, after reports emerged that several OPEC+ members are pushing for an accelerated oil output increase in June.

The timing of this move – amid global trade uncertainty and softening demand – may seem counterintuitive. But internal rifts within OPEC+ appear to be taking precedence. In May, Saudi Arabia already surprised the market with an output hike aimed at disciplining quota violators. That move failed to restrict Kazakhstan, the group’s largest overproducer, and has now triggered discussions of yet another sizeable production boost in June.

A later statement from Kazakhstan’s energy ministry, pledging renewed compliance, may have helped lift crude prices slightly this morning.

The next OPEC+ meeting is set for May 5, with the proposed June output hike expected to top the agenda. The group will likely choose between a scheduled, incremental increase of 138,000 barrels per day, or a more aggressive jump of 411,000 barrels per day – equivalent to ish three months’ worth of increases rolled into one. The latter scenario would put downward pressure on oil prices and highlight deepening tensions within OPEC+, while also exacerbating concerns in a market already clouded by weak demand expectations.

Although the final decision on volumes remains unclear, OPEC+ has demonstrated it still has pricing power, and that it can pull prices lower quickly if it chooses to do so.

________

US DOE DATA

U.S. refinery activity picked up in the week ending April 18, with crude inputs rising by 326,000 barrels per day to a total of 15.9 million. Utilization rates also climbed to 88.1%. Gasoline output strengthened to 10.1 million barrels per day, while distillate fuel production edged lower to 4.6 million.

Crude imports declined by 412,000 barrels per day to 5.6 million last week. Over the past month, import volumes have averaged 6.1 million barrels per day – down 6.8% compared to the same period a year ago. Gasoline and distillate imports came in at 858,000 and 97,000 barrels per day, respectively.

Inventories were mixed. Crude oil inventories (excl. SPR) rose slightly by 0.2 million barrels to 443.1 million, still 5% below the five-year average. Gasoline inventories posted a sharp draw of 4.5 million barrels and are now 3% under seasonal norms. Diesel inventories dropped by 2.4 million barrels, leaving levels 13% below the five-year average. Propane inventories rose by 2.3 million but remained 7% under typical levels. Total commercial petroleum inventories saw a net decline of 0.7 million barrels on the week.

Product demand was generally stable. Total products supplied averaged 19.9 million barrels per day over the last four weeks, up 0.4% year-on-year. Gasoline demand slipped by 0.4%, while distillates and jet fuel rose sharply, by 12.8% and 13.8%, respectively.

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Analys

Nam, nam, nam. Give me more 36mth forward Brent crude in EUR/barrel

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3 dagar sedan

den

23 april, 2025

Redaktionen

Brent carried higher by relief rally across markets as Trump backs away from sacking Powel. Brent crude rose 1.8% ydy to USD 67.44/b with an intraday high of USD 68.04/b. The gain was driven by a relief rally across markets as it became clear that Trump would not try to force out Powel from his role as chair of the US Fed. US equities rallied more than 2.5% as a result and pulled oil along upwards in relief. The gains continue this morning both in equities and oil with the latter up 1.2% to USD 68.25/b.

Forward oil in euro looks very appealing for consumers. Even after recent oil price gains. A weaker USD and a lower oil price at the same time recently has strongly lifted the appeal for oil purchases by non-US denominated oil consumers. The euro has rallied against the USD. On Monday Brent closed at EUR 57.57/b while the 3yr forward Brent price closed at a nominal EUR 53.95/b when the forward fx rate is applied. But this is nominal three years forward basis. If we also assume that Eurozone inflation will average 2% pa. for the next three years, then the real forward euro price for oil is even lower. The price for Brent crude today is EUR 60.1/b for the front-month while the 36mth contract is EUR 55.1/b when the forward eurusd rate of 1.2 is applied. If we also assume a 2% annual inflation for three years then the real forward price is only EUR 51.9/b. Compare this to the average nominal price of Brent crude from 2015 to 2019, the shale oil boom-years, when Brent crude only averaged USD 58.5/b and EUR 51.3/b. This period was the tragic oil-years when US shale oil companies were chasing volumes rather than profits with many of them going bankrupt as a result. Even after the recent rally in Brent crude oil prices, the forward 36mth price in EUR is still relatively cheap in historical terms and especially so when the 36mth real forward price is taken into account.

The 36mth real forward price for Brent crude in EUR/b is almost down to the ”valley of death” period from 2015 to 2019 when Brent crude nominally averaged USD 58.5/b and EUR 51.3/b. That was the period when US shale oil producers aimed for volume over profits which led many of them to bankruptcy.