US Crude Production Hits 13-Month Highs As Oil Rig Count Doubles Off May 2016 Lows

Tyler Durden's picture

With crude production at 13-month highs, the trend of rising rig counts (now up 10 weeks in a row) suggests OPEC remains anything but in control as the global inventory glut deepens. The last week saw the oil rig count rise by 21 (the most since January) to 652 - the highest since September 2015.

From 318 at its trough in May 2016, the US oil rig count is now up 332 to 652 (a double) - tracking the lagged WTI price perfectly...

Bloomberg Intelligence analysts Andrew Cosgrove and William Foiles wrote in a note Monday.

“U.S. rig counts may continue to rise further in the short run, given the lag between approvals and physical deployments,” Cosgrove and Foiles said.

 

“Any rig increases should remain front-loaded in the first half as capital spending ramps up at least 40 to 50 percent in 2017.”

US Crude production continues to track the lagged rig count and is now at its highest since Feb 2016...

 

The reaction in WTI was modestly lower...

 

And OPEC producers are in trouble...

As Bloomberg reports, oil officials from Kuwait, Algeria, Venezuela, Russia and Oman meet in Kuwait this weekend to discuss how well OPEC members have adhered to the agreement to curtail output. With oil falling on the heels of bearish figures from the EIA, the organizations’ producers are being squeezed by fiscal breakevens that soar an average of $40 a barrel above the current oil price, according to figures from RBC.

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BritBob's picture

Falklands oil - worth a punt?

 

Rockhopper Exploration has issued an update on planning for Phase 1 of the Sea Lion oil field development in the offshore North Falkland basin. Operator Premier's latest estimate of capex to first oil is US$1.5 billion, with life of field costs (capex, opex, and lease) of around US$35/bbl for Phase 1.

 Rockhopper CEO Sam Moody described this as “highly attractive” in the context of the current oil price. The estimated break-even price is US$45/bbl.
The partners have submitted an environmental impact statement and revised draft field development plan to the Falkland Islands government, and discussions are set to continue on a range of operational, fiscal, and regulatory matters.
They have also reached a settlement on an insurance claim relating to costs incurred on the Isobel Deep exploration well during the 2015/16 North Falkland basin exploration campaign. Value is US$90 million (after deductions) on a gross basis. (MercoPress 23.12.16)

What about the Argentinians?

Falklands – Territorial Waters: https://www.academia.edu/10574593/Falklands_Islands_Territorial_Waters

All hot air...

 

BingoBoggins's picture

Oh, Fuck Off!!

 

sorry ... I'm just lashing out at anything today ... it's all my fault, really

Paul Kersey's picture

So Trump puts Keystone back in motion, so that Canadian and Kuwait Government (Arab) owned oil can travel through the US and end up in the Gulf, where it can be shipped to China, so that the Arabs can better compete with U.S. shale oil companies. Yep, the Government of Kuwait is a big player in Canadian oil:

"Kuwait buys into Canadian shale play"

http://english.alarabiya.net/en/business/energy/2014/10/06/Kuwait-buys-i...

Quivering Lip's picture

Wow what a reaction 14 cents!

GUS100CORRINA's picture

OPEC IN TROUBLE?????

My Response: GOOD!!!!!! Let them eat their OIL!!

mily's picture

Nigeria, Libya, Venezuela are so FUBAR

silverer's picture

I didn't realize that Venezuela is in trouble even at $100 a barrel. I hate to rain on Maduro's parade, but I don't see anything close to that for quite a while. And once the Keystone pipeline is built, there are even more purchase options.

ThanksIwillHaveAnother's picture

Oil is a GSC (Government Sponsered Cartel) like Pharma so the accounting is bullshit.

silverer's picture

Slippery stuff, that oil.

A. Boaty's picture

Long Iran and Gabon.

adr's picture

Oh yeah, $50 is breakeven when Iran says they can pump oil for a profit at $2.

Fuck off. 

Promises made to citizens doesn't count as breakeven for pulling oil out of the ground. 

$30 is more than enough to make profit anywhere in the world. 

Or did putting rigs in the middle of the ocean when oil was $18 not count. 

Oil above $30 is nothing but a figment of the Jewish mind. Too bad they have the power to make it too real. 

BanyakUang's picture

Exactly.  Government spending is not a marginal cost of production.

venturen's picture

let me know when they mortgage their goldplated 747's? Ever been to London during the2 Saudi summer? Every 2 bit arab child is driving a lambo!

Cutter's picture

I smell a rat. Within the last few days there have been a flurry of articles trying to push the line that all is great in the US oil patch.  But these charts show its still just half what it was prior to 2015. Everyone keeps talking about the huge rig count increase, and how the profits are rolling in at $47.  But AP ran an article today stating that the vast majority of rigs being drilled are being capped, not put into production, because the companies can't make money at these prices.  The companies are merely drilling the rigs to comply with contractual obligations on their leases, so they don't lose their lease, and have to buy it back later at inflated prices.  Their plan is to wait for profitable prices before bringing the rigs online.  None of this supports the notion that the US will quickly be back at the pre-2015 production levels.

I suspect someone has an investment vehicle they are trying to sell, in an effort to recapitalize some of these companies that have been hit hard financially during the downturn.  And the only way to sell, is to talk up the fantasy of how rosy it is in the shale business.   

gammab0y's picture

This might be happening in some places, but I can tell you from direct experience that there is a lot of fracking going on.  Huge demand for services.  Still way short of the peak but much higher than six months ago and trending.  Service prices rising too.  The huge productivity gains have cut costs dramatically, but this is going to start getting pinched by more pricing power from services providers.

This,is also leading to spot shortages that are going to start delaying projects.  Already seeing manpower issues.  

If the bear thesis were true, prices should have already moved sharply lower.  Something else is happening.  I don't understand the dynamic, but with so much headline bearish news, the price behavior makes me bullish.  Maybe it's crack up boom time.  Based in some of the crazy heat I am seeing in construction markets, I think there is a lot of short term demand emerging, and while it may be a short term, artificial blip, and another round of bad market signals and malinvestment, it could have a real impact on commodities for 6-12 months.

I went long CL yesterday and expect to see the prompt month trading over $65 in coming months.

I should also add that I think the risk of 5-6 countries all interacting in Syria is being undervalued.  Maybe people feel like it is an old story, but the current dynamic is new. There are a lot of ways it could get ugly.

Cutter's picture

Thanks for the great reply.  You sound like you know the industry.  Did you see Art Berman's piece from yesterday title "Tech Miracle In US Shale Is A Media Myth?"  If not, would be interested in your opinion, link here: http://oilprice.com/Energy/Energy-General/Tech-Miracle-In-US-Shale-Is-A-....  Would also recommend a recent interview with Art Berman on the podcast "Macro Voices."  

I hear you.  Who knows?  I'm sceptical, given the rising production and huge inventory builds, the fundamentals would indicate that prices should be headed significantly lower.  But there is something nagging at me, that there is a possibility of tremendous upside.  I think the market is ignoring the potential for some major black swans.  Specifically, geopolitical risk of conflict with Iran.  The increasing US military presence in Syria, now up to about 750, including more conventional forces like Marines, is aimed at ISIS short term, but Iran long term. The neocons essentially want to carry the Saudi's water, and put Iran in her place.  The Israelis just risked confrontation with Russia and bombed Shia Iranian ally Hezbollah in Syria, the administration put Iran on notice over her missile firings to which Iran responded by firing more missiles, and the administration just reauthorized significant arms sales to the Saudis which had been put on hold over Saudi atrocities against Iranian backed shia in Yemen.  

Its quiet at the moment, but I think something is stirring beneath the calm.  

Were we to get into a shooting war with Iran, it would encompass Iran, but also Syria, Iraq, and the Saudis.  Last I heard we have a 2 million barrel surplus.  If Iranian production goes offline, we are now at par.  And if Iran retaliates by firing missiles at Saudi oil fields???

So agree with you that there could be real upside.  In the absence of anything geopolitical though, it doesn't look good for the shale producers.   

 

gammab0y's picture

That was an interesting article.  He is definitely correct that some of the cost reductions attributable to productivity are actually the result of fire-sale pricing from service providers.   That cycle has turned, however, and service providers are re-establishing some pricing power.  Nothing like 2014/2015 but better than 2016.

But he is missing something in his dismissal of productivity.  First, his statement that "technology does not create energy" is wrong in this case.  Depletion rates mightt be higher with new wells, but the initial flows are so much higher than they used to be, the total gains in bbls produced is truly higher (his own cumulative production charts shows this, so not sure why he dismisses that so easily).   

But the real producitivity gains have not come so much from the drilling of a single well but from the way drillers have learned to zipper together multiple wells on the same pad.   As a stage on one well finishes, the equipment for that stage can be moved just down the pad to be put to work on another well.  It's a bit amazing now to see how quickly they put together equipment and break it down. 

This is where I expect to see some supply chain breakdowns in the near future.  Bottlenecks  are forming with equipment and manpower, and my thesis is that we are going to start seeing circumstances where drilling cannot proceed as planned due to these bottlenecks.  That, and the pricing increases from suppliers make marginal projects less attractive.

I also agree with everything you said re: Syria.  I think the mindset is that Syria is just a sad story but has become tragic background noise.  I think there are now so many players with cross-agendas, that it is just a matter of time before something gets hot and captures the attention of the market.

Cutter's picture

Very interesting.  Thanks.  So what is your assessment of the break even point at which shale becomes untenable?  I realize its different for different companies and in different regions, but just how low can the shale companies go, before they shut down?  Also, to many its seemed that easy money policy played a huge role in the ability of shale to grow and prosper, since so many companies didn't look like their cash flow was self-supporting?  What are your thoughts on what happens to shale in a tightening and rising interest rate environment?  

Last questions, appreciate your taking the time.