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Oil Prices Tumble As Pace Of Rig Count Decline Slows

Tyler Durden's picture




 

With production and inventories at record levels despite the total collapse in rig counts, all eyes remain on Bake rHughes data for any signal the algos can use to mount a run. The total rig count fell for the 12th week, down 43 to 1267. This 3.3% decline is the slowest drop in 6 weeks and oil prices are sliding on this news. The key level to watch for WTI is $48.24 which moves it into the red for the 8th month in a row.

  • *U.S. TOTAL RIG COUNT -43 TO 1,267, BAKER HUGHES SAYS
  • *U.S. OIL RIG COUNT -33 TO 986, BAKER HUGHES SAYS

The pace of decline (and this future possible production) is dropping...

 

In theory, Oil prices should surge on this news...

They are not...

 

 

The excess supply, continued record production, and record inventory in the US (compared to refinery demand in Europe) has smashed the Brent-WTI spread to over $12.50 - the highest since Jan 2014...

 

As Brean Capital's Peter Tchir recent noted, despite the plunge in rig counts, so far there is no sign of contraction in output.

 

The problem is that not all rigs are created equal, and what we see is still a “net” number. We see the net number of rigs that are working. The reality is that some new projects continue to come on line and are very high producing wells, and some of what is being taken away, was either old, or projects that hadn’t yet been contributing production.

I for one, cannot claim to know what each and every rig in America can produce, let alone the world, but I am willing to bet there is at least one person out there with a spreadsheet that does. They can estimate production very well. These are the people who have been pounding on the table that this rig count is NOT helping production much, at least for the next 3 to 6 months. They are quickly learning the lesson of trying to get a few facts to stand in the way of a good meme, but I think they are about to get listened to. Especially as

  • A Libyan pipeline is coming back on line
  • Neither the Saudi rhetoric not willingness to pump, seems to have changed
  • The “pump or die” needs of many leveraged companies is becoming more clear – some companies are in the unfortunate position of having to pump more at lower prices than at higher prices to meet cash flow needs
  • Positioning once again got too bullish

So add to my list of worries for “risk on” trades, that while oil has stabilized, the next leg is likely lower.

*  *  *

Furthermore, the Front-month to 2nd month contango continues to surge - now at $2.30, a 4 year high...

 

"Rising U.S. inventories and the threat that expanding strike action might further reduce refinery runs prompting selling at the front of the WTI crude oil curve, with April futures falling to a $2.30 discount to the May contract, and the April Brent-WTI spread probing beyond the $12.50 mark," says Citi Futures energy futures specialist Tim Evans

 

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Fri, 02/27/2015 - 14:14 | 5836067 kill switch
kill switch's picture

Crude Oil (WTI)

USD/bbl. 49.32 +1.15 +2.39% Apr 15

13:01:15

 

Fri, 02/27/2015 - 14:35 | 5836128 americanreality
americanreality's picture

Interesting.  This explains why I am paying .40 cents more a gallon than I did a few weeks ago.  Wait-..  never mind.

Fri, 02/27/2015 - 14:57 | 5836199 kaiserhoff
kaiserhoff's picture

There is a refinery strike on that the companies are trying to work through with replacement workers.

Excellent on the futures connection.  That will drive prices for the near term.

Fri, 02/27/2015 - 15:25 | 5836278 sun tzu
sun tzu's picture

You can put crude oil in your gas tank.

Fri, 02/27/2015 - 15:34 | 5836316 sun tzu
sun tzu's picture

Seems like each rig count pump keeps getting weaker. The first one ran up to $55. Then $54. Then $53. Now it can't even get up to $50. Wait until the API inventory report comes out next Tuesday. Whammo, back to $45. Even news of the rigs being shut down in the North Sea barely moved Brent. 

Fri, 02/27/2015 - 14:19 | 5836077 KnuckleDragger-X
KnuckleDragger-X's picture

The prices on all industrial commodities are sliding which means the economy is booming and other opium dreams....

Fri, 02/27/2015 - 14:20 | 5836078 Abitdodgie
Abitdodgie's picture

Got to bring the price down so the rig's keep closing , once the American oil bisiness is shot the price will go back up.

Fri, 02/27/2015 - 23:22 | 5838352 Rakshas
Rakshas's picture

....yeah that's essentially correct given the rise in production is primarily an American Pipe Dream phenomenon - of course my understanding is based on numbers that are ..... well .... interesting .  Iraq gets the blame for surplus according to the EIA though the elephant in the room appears to be a coffee table now.....  At any rate the entirety of this "surplus" is pretty thin against the daily consumption..... does anyone know if we have a billion barrels in the strategic reserve yet??     

 

..... the major drilling contractors are looking more interesting at these price levels..... x-specially if those NAZIONIST armoured units keep parading around dumbfukistan .... 

Fri, 02/27/2015 - 14:21 | 5836080 Rainman
Rainman's picture

Pretty good article in Forbes today from the guy who called the oil crash in August . Interesting take on Mexico's PEMEX ramping up another million barrels of production.

          http://www.forbes.com/sites/thomaslandstreet/2015/02/25/why-oil-will-fall-to-40-as-obama-looks-the-other-way/

Fri, 02/27/2015 - 14:30 | 5836111 LawsofPhysics
LawsofPhysics's picture

When the fusion reactors start coming on line, I will start worrying about oil "crashing"...

 

Having oil prices decline for now is politically conveinient.

Fri, 02/27/2015 - 16:07 | 5836434 daveO
daveO's picture

Not just convenient, intentional, for 2 reasons. 1.To offset ObamaCare expenses w/o creating a outright revolt. Anesthesia for the slaves. 2.To squeeze Russia. This can go on until summer. 

Fri, 02/27/2015 - 14:38 | 5836138 americanreality
americanreality's picture

Chris Cook called it in 2012.  His timing was off but the logic and analysis was solid.  Really impressed by him.  Find the article on nakedcapitalism.  A great intelligent alternative to this right wing cheerleading site.

Fri, 02/27/2015 - 14:45 | 5836160 Duc888
Duc888's picture

 

 

 

"right wing"  That's funny.

Fri, 02/27/2015 - 15:37 | 5836177 Urban Redneck
Urban Redneck's picture

some people really don't get it... but propaganda lobotomies have a way of blinding people to what's right (or left) in front of them.

 

Edit: The irony of the homoerotic relationship between Captain Harris and Lieutenant Proctor every time one of them runs through the wrong door thinking it's the right door... only to find himself in the gay bar comes to mind...

Fri, 02/27/2015 - 16:44 | 5836599 AbbeBrel
AbbeBrel's picture

I found the nakedcapitalism article - and didn't find it as interesting as the forbes article - here is the link :

http://www.nakedcapitalism.com/2012/02/chris-cook-the-oil-end-game.html

Besides Marc Rich is dead. Too bad about that. At least Clinton pardoned him. Interesting guy. But the 2012 article is pretty dated at this point. Reads like the usual ZH article though.

Thanks Rainman for posting the forbes link.

thanks AR for the belly laugh about ZH :-)

Fri, 02/27/2015 - 15:36 | 5836323 sun tzu
sun tzu's picture

If opposition to endless wars, a police state, and Wall Street welfare are considered right wing, then where do I sign up?

Fri, 02/27/2015 - 16:34 | 5836557 daveO
daveO's picture

Good article. It proves that a Communist gov. (Mexico) will do the right thing after it's exhausted all other possibilities.

Sat, 02/28/2015 - 00:04 | 5838437 Rakshas
Rakshas's picture

I won't contest the logic for short term price declines - but then here we fucking go again unable to see past the end of our noses  so far as our time horizons are concerned..... just for the hell of it lets say the recoverable reserves offshore are reasonable and close to the estimates given in the article of 90 billion barrels; if .... if we could suck every drop out of the ground that would only give us about 13.7 thousand  years worth of domestic supply .....aha .. I think I am begining to understand why we are blowing the shit out of MENA to steal thier oil ....... we're apparently afraid of running out ..... peak oil sucks

 

Edit..... Fucking willard calculator

Fri, 02/27/2015 - 14:23 | 5836083 disabledvet
disabledvet's picture

Azerbaijan is an American ally in case anyone is wondering.

Fri, 02/27/2015 - 14:24 | 5836089 henry chucho
henry chucho's picture

Now that bottled drinking water is more expensive than crude oil,I keep wondering why no one talks about a "glut" of water,or does "price discovery" only pertain to the commodities that Goldman Sachs deems acceptable?

Fri, 02/27/2015 - 14:26 | 5836094 Pullmyfinger
Pullmyfinger's picture

US oil consumption has been in steady decline since 2004. I see no inclusion of ongoing demand destruction in this analysis.

Fri, 02/27/2015 - 14:31 | 5836116 LawsofPhysics
LawsofPhysics's picture

No need to as we still consume over 18 million barrels per day, hence, are still a net importer.  Strong dollar and cheaper price, win-win...

Fri, 02/27/2015 - 14:49 | 5836167 Pullmyfinger
Pullmyfinger's picture

A good point, though I would argue the "strong dollar" theme. Not really relevant in this particular instance, but I perceive the rising dollar index as a symptom of dollar decline. Seemingly paradoxical, but it's causing huge distress everywhere else, and will ultimately contribute, however briefly, to another round of decline in the oil price.

Fri, 02/27/2015 - 14:39 | 5836143 Slurm
Slurm's picture

Can we get some pretty charts for wholesale gas?

 

My god it's off the charts the past few weeks, and even more so the past few days. It moved up over $0.25 Wed/Thur!

 

Gas at the pump here in California is now over $1 more a gallon, in just the past 3 weeks. It's redonkulous

Fri, 02/27/2015 - 14:52 | 5836179 Pullmyfinger
Pullmyfinger's picture

Please note that petroleum price declines are the leading cause of refinery fires. (southern cal)

Fri, 02/27/2015 - 15:16 | 5836249 StarfishPrime
StarfishPrime's picture

On my way to work in the oil fields, I cross I-5 near Bakersfield. There is a Exxon on the east side of the highway and a Chevron on the west side. They both have the same price for the same grades. 87 octane (lowest) is now back to $4.29/gal! The craziest part is there are always cars stopped there filling up!

$4.29*42-$48 = $132/bbl gross margin - outrageous.

Fri, 02/27/2015 - 14:51 | 5836174 Madcow
Madcow's picture

supply is falling off but demand is falling faster.  

commodities tend to perform poorly in global deflationary collpases and multi-decade economic depressions.

Fri, 02/27/2015 - 14:52 | 5836178 Goldbugger
Goldbugger's picture

This is bullish , DOW 20K.

Fri, 02/27/2015 - 15:41 | 5836346 sudzee
sudzee's picture

WTI pricing has become meaningless. It just paper oil.

Fri, 02/27/2015 - 15:53 | 5836393 In.Sip.ient
In.Sip.ient's picture

According to "official" gov't figures posted here on ZH a

few days ago, the worldwide demand for oil is

15Million bbls/day higher than world wide production.

 

Last time I heard, when demand outstrips supply

prices rise... except in Precious Metals... and now Oil.

I guess naked shorting worked so well in the PM

markets its now getting a swing at the oil markets.

 

Perhaps for the same reason???

 

Fri, 02/27/2015 - 16:07 | 5836429 Dre4dwolf
Dre4dwolf's picture

The only way demand can outstrip supply and prices can drop at the same time is, if the supply is being over-sold and a large portion of the buyers are speculators who do not take delivery of oil.

 

So for every 1 barrel of actual barrels that exist on the market, there are probably 1.10~1.35 barrles being sold.

 

Gold is more susceptible than oil to market manipulation because its supply (actual amount of gold in circulation doesnt decrease so much) (it doesnt get burned up/used)

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