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

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8 år sedan

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10 juli, 2017

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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

Annons

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

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Stronger inventory build than consensus, diesel demand notable

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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.

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

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5 dagar sedan

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19 februari, 2025

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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

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

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7 dagar sedan

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17 februari, 2025

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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.