Petroleum News – July

Refinery operating rates were up 1.1% this week at 93.6%. Imports were down for crude and distillates, but up for gasoline. Apparent demand for products was up this week.
In a Thursday research report, the Wall Street bank called on U.S. shale-oil producers to join in efforts to tackle the global supply glut that has pummeled prices since the summer of 2014. “If OPEC doesn’t balance the market, the oil price will have to force it somewhere else, most likely in U.S. shale. For a chance of a balanced market in 2018, the U.S. rig count can no longer grow and possibly needs to contract ~150 rigs. Given current break-evens, this requires WTI between $46-50,” the Morgan Stanley analysts said in the report. Cementing their downbeat assessment of the oil market, they significantly downgraded their 2017 forecasts for both West Texas Intermediate and Brent.“ To support prices in the mid-$50s, OPEC12 would probably need to lower production by another 200,000-300,000 barrels a day and extend the output agreement to end-2018. We find this unlikely,” they added. Out of the 14 OPEC members, only 12 are included in the output restrictions. Libya and Nigeria are exempt because production in those countries has been hit by internal conflicts. Supply from both nations, however, has risen recently, seen as partly scuttling OPEC’s efforts to bring down inventories. Additionally, U.S. shale producers responded to the higher prices that came after the OPEC deal by ramping up production rapidly, helping to offset the global production cuts
The U.S. rotary rig count from Baker Hughes was up 12 at 952 for the week of July 7, 2017. It is 512 rigs (116.4%) higher than last year. The number of rotary rigs drilling for oil was up 7 at 763. There are 412 more rigs targeting oil than last year. Rigs drilling for oil represent 80.1 percent of all drilling activity. Rigs directed toward natural gas were up 5 at 189. The number of rigs drilling for gas is 88 higher than last year’s level of 101. Year-over-year oil exploration in the U.S. is up 117.4 percent. Gas exploration is up 114.8 percent. The weekly average of crude oil spot prices is 0.6 percent lower than last year and natural gas spot prices are 2.9 percent higher than last year. Canadian rig activity was down 14 at 175 for the week of July 7, 2017 and is 94 (116.0) higher than last year. Rigs targeting oil were down 7 at 105 and are 68 (183.8%) higher than last year. Gas directed rig count at 70 was down 7 and is 27 rigs (62.8%) higher than last year. Canadian drilling falls rapidly in the spring to avoid environmental damage moving drilling equipment during the spring thaw and rainy season. With large weather related seasonal swings, even year-over-year comparisons can lead to incorrect conclusions.