Analys
US shale oil rigs keeps rolling in (oil price not yet low enough to reverse the inflow)

Crude oil price action – A marginal rebound this morning before selling down further
Brent crude traded down 2.5% w/w to Friday with a close of $46.71/b. From a high close of $49.68/b last Monday it was downhill all week with a selloff from Monday close to Friday close of a full 6%. Not even the report of a large inventory draw in US (Crude: -6.3 mb, Gasoline: -3.7 mb and Distillates: -1.9 mb) on Thursday was able to counter the bearish sell-off. This morning Brent crude rebounded 0.5% to $47.18/b before the selling continued. The invitation of Nigeria and Libya to OPEC & Co’s meeting in St. Petersburg, Russia on July 24th is put forward as the explanation for the rebound. Of course OPEC & Co would like to see a production cap on both Nigeria and Libya. It would of course be no problem for Libya to offer a production cap which would be 5% below its 1.6 mb/d capacity while it now is producing just above 1 mb/d and thus still a long way off from a potential cap of 1.5 mb/d (minus 5% versus capacity of 1.6 mb/d).
Further, what has now become entirely clear is that cutting production makes little sense as long as US drillers keeps adding +30 rigs each month.
Crude oil comment – US shale oil rigs keeps rolling in (oil price not yet low enough to reverse the inflow)
The number of US oil rigs rose by 7 last week and also by 7 for implied shale oil rigs. That is above the 10 week average of 5.8 rigs/week. The weekly average since start of June 2016 is 6.7 rigs/wk. There is typically a 6 week lag from price action to rig count change reaction. Six weeks ago the 18mth forward WTI price stood at around $49 – 50/b and thus above the $45-47/b empirical inflection point from one year ago (the price level where oil rigs neither increase nor decrease). Thus naturally rigs keep flowing into market. I.e. the oil price and the forward WTI crude curve were still too high six weeks ago.
The WTI 18 mth on Friday closed at $47.3/b and thus just touching down to the inflection point (empirical value from one year ago)
US oil rig inflow has not yet stopped and continues to flow into the market at a solid, steady rate as of yet.
The oil price needs to move lower in order to stem the inflow.
Over the past six weeks 35 shale oil rigs were added into active operation. So what is the productive impact of these extra 35 rigs? Our estimate is that today each active rig will lead to about 1200 b/d/mth of new production in a combination of [wells/rig/month] and [barrels/well/day/mth1]. That is 42,000 b/d/mth of new production for the 35 rigs. Today we assume a lag from rig activation to first oil of some 8 months due to pad drilling practice. The 35 rigs added over the past 6 weeks will thus be hitting the market with production in January/February 2018. From then onwards well will be stacked on well month after month. The staggering calculation is that by the end of 2018 these 35 rigs will add some 300 kb/d of production when the production of all these wells is stacked on top of each other (assuming 60% well production decline after 12mths).
Tomorrow the US EIA will release its monthly Short Term Energy Outlook (STEO) with a forecast stretching to end of 2019. The EIA has been lagging and under estimating US crude production consistently over the past year. As such they have revised US production forecast up, up, up every month with respect to 2017 and 2018 forecasts. Today their 2017 forecast is probably mostly correct. Their forecasts for 2018 and 2019 are however in our view hugely under estimated. As such we expect them to continue to revise their US crude production forecasts higher and that this will also be part of their message tomorrow at 1800 CET.
Table 1: US oil rig count up by 7 last week
Ch1: US shale oil rig count change versus oil prices 6 weeks ago
Ch2: As oil prices have a lagging impact we expect oil rigs to continue flowing into the market until late August
Ch3: Productive effect of the 35 shale oil rigs added last six weeks: +300 kb/d in December 2018
Assuming 1200 b/d/rig/mth1 and a well production decline of 60% after 12 mths
Ch4: The official US drilling productivity probably under estimates real productivity by some 40% to 60%
This is what we find when we combine wells/rig/mth with barrels/day/well/mth1
When the US EIA adjust for this in their models it should have a dramatic effect on their US oil production forecast.
Table2: Solid draw in inventories in last week’s data
Ch5: Inventories in weekly data back on track for decline – more to come in H2-17
At the moment the market doesn’t care.
The effect should be a tightening of the time spreads at the front end of the crude curve 1 to 3 mths and 1 to 18 months.
Ch6: WTI net long speculative positions slightly higher last week
Net long position still to the high side of neutral
Ch7: Crude forward curves close on Friday and one week ago
Kind regards
Bjarne Schieldrop
Chief analyst, Commodities
SEB Markets
Merchant Banking
Analys
Breaking some eggs in US shale

Lower as OPEC+ keeps fast-tracking redeployment of previous cuts. Brent closed down 1.3% yesterday to USD 68.76/b on the back of the news over the weekend that OPEC+ (V8) lifted its quota by 547 kb/d for September. Intraday it traded to a low of USD 68.0/b but then pushed higher as Trump threatened to slap sanctions on India if it continues to buy loads of Russian oil. An effort by Donald Trump to force Putin to a truce in Ukraine. This morning it is trading down 0.6% at USD 68.3/b which is just USD 1.3/b below its July average.

Only US shale can hand back the market share which OPEC+ is after. The overall picture in the oil market today and the coming 18 months is that OPEC+ is in the process of taking back market share which it lost over the past years in exchange for higher prices. There is only one source of oil supply which has sufficient reactivity and that is US shale. Average liquids production in the US is set to average 23.1 mb/d in 2025 which is up a whooping 3.4 mb/d since 2021 while it is only up 280 kb/d versus 2024.
Taking back market share is usually a messy business involving a deep trough in prices and significant economic pain for the involved parties. The original plan of OPEC+ (V8) was to tip-toe the 2.2 mb/d cuts gradually back into the market over the course to December 2026. Hoping that robust demand growth and slower non-OPEC+ supply growth would make room for the re-deployment without pushing oil prices down too much.
From tip-toing to fast-tracking. Though still not full aggression. US trade war, weaker global growth outlook and Trump insisting on a lower oil price, and persistent robust non-OPEC+ supply growth changed their minds. Now it is much more fast-track with the re-deployment of the 2.2 mb/d done already by September this year. Though with some adjustments. Lifting quotas is not immediately the same as lifting production as Russia and Iraq first have to pay down their production debt. The OPEC+ organization is also holding the door open for production cuts if need be. And the group is not blasting the market with oil. So far it has all been very orderly with limited impact on prices. Despite the fast-tracking.
The overall process is nonetheless still to take back market share. And that won’t be without pain. The good news for OPEC+ is of course that US shale now is cooling down when WTI is south of USD 65/b rather than heating up when WTI is north of USD 45/b as was the case before.
OPEC+ will have to break some eggs in the US shale oil patches to take back lost market share. The process is already in play. Global oil inventories have been building and they will build more and the oil price will be pushed lower.
A Brent average of USD 60/b in 2026 implies a low of the year of USD 45-47.5/b. Assume that an average Brent crude oil price of USD 60/b and an average WTI price of USD 57.5/b in 2026 is sufficient to drive US oil rig count down by another 100 rigs and US crude production down by 1.5 mb/d from Dec-25 to Dec-26. A Brent crude average of USD 60/b sounds like a nice price. Do remember though that over the course of a year Brent crude fluctuates +/- USD 10-15/b around the average. So if USD 60/b is the average price, then the low of the year is in the mid to the high USD 40ies/b.
US shale oil producers are likely bracing themselves for what’s in store. US shale oil producers are aware of what is in store. They can see that inventories are rising and they have been cutting rigs and drilling activity since mid-April. But significantly more is needed over the coming 18 months or so. The faster they cut the better off they will be. Cutting 5 drilling rigs per week to the end of the year, an additional total of 100 rigs, will likely drive US crude oil production down by 1.5 mb/d from Dec-25 to Dec-26 and come a long way of handing back the market share OPEC+ is after.
Analys
More from OPEC+ means US shale has to gradually back off further

The OPEC+ subgroup V8 this weekend decided to fully unwind their voluntary cut of 2.2 mb/d. The September quota hike was set at 547 kb/d thereby unwinding the full 2.2 mb/d. This still leaves another layer of voluntary cuts of 1.6 mb/d which is likely to be unwind at some point.

Higher quotas however do not immediately translate to equally higher production. This because Russia and Iraq have ”production debts” of cumulative over-production which they need to pay back by holding production below the agreed quotas. I.e. they cannot (should not) lift production before Jan (Russia) and March (Iraq) next year.
Argus estimates that global oil stocks have increased by 180 mb so far this year but with large skews. Strong build in Asia while Europe and the US still have low inventories. US Gulf stocks are at the lowest level in 35 years. This strong skew is likely due to political sanctions towards Russian and Iranian oil exports and the shadow fleet used to export their oil. These sanctions naturally drive their oil exports to Asia and non-OECD countries. That is where the surplus over the past half year has been going and where inventories have been building. An area which has a much more opaque oil market. Relatively low visibility with respect to oil inventories and thus weaker price signals from inventory dynamics there.
This has helped shield Brent and WTI crude oil price benchmarks to some degree from the running, global surplus over the past half year. Brent crude averaged USD 73/b in December 2024 and at current USD 69.7/b it is not all that much lower today despite an estimated global stock build of 180 mb since the end of last year and a highly anticipated equally large stock build for the rest of the year.
What helps to blur the message from OPEC+ in its current process of unwinding cuts and taking back market share, is that, while lifting quotas, it is at the same time also quite explicit that this is not a one way street. That it may turn around make new cuts if need be.
This is very different from its previous efforts to take back market share from US shale oil producers. In its previous efforts it typically tried to shock US shale oil producers out of the market. But they came back very, very quickly.
When OPEC+ now is taking back market share from US shale oil it is more like it is exerting a continuous, gradually increasing pressure towards US shale oil rather than trying to shock it out of the market which it tried before. OPEC+ is now forcing US shale oil producers to gradually back off. US oil drilling rig count is down from 480 in Q1-25 to now 410 last week and it is typically falling by some 4-5 rigs per week currently. This has happened at an average WTI price of about USD 65/b. This is very different from earlier when US shale oil activity exploded when WTI went north of USD 45/b. This helps to give OPEC+ a lot of confidence.
Global oil inventories are set to rise further in H2-25 and crude oil prices will likely be forced lower though the global skew in terms of where inventories are building is muddying the picture. US shale oil activity will likely decline further in H2-25 as well with rig count down maybe another 100 rigs. Thus making room for more oil from OPEC+.
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


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