Rig Count Rises To April 2015 Highs As Analysts Warn "Oil Market Rebalancing Hasn't Even Started Yet"

Tyler Durden's picture

After falling for the first time this year two weeks ago, Baker Hughes reports US oil rig count rose once again (up 2 to 765) for the 24th week in the last 25, to the highest since April 2015.

"The so-called re-balancing is likely to happen later than earlier," Michael Poulsen, an analyst at Global Risk Management Ltd, said on Friday.

It does appear we have reached an inflection point in the rig count numbers (if the historical relationship with crude holds)...

 

While EIA cut its 2018 production outlook, this week saw the effect of field maintenance in Alaska and Tropical Storm Cindy in the Gulf of Mexico fall away and production surged once again this week - to new cycle highs...

 

And the lagged rig count trend suggests crude production has further to rise yet...

Crude prices have been active today with macro headlines hurting and machines helping ramp any dip... the rig count create iunstant selling which was instantly bid back upo,,,

And while US crude production just jumped to cycle highs (and shale production we believe reached a record high), OilPrice.com's Nick Cunningham notes the oil market rebalancing hasn't even started yet...

Global oil production surged in June “as producers opened the taps,” according to a new report from the International Energy Agency (IEA). OPEC was a major culprit, with Libya and Nigeria doing their best to scuttle the production cuts made by other members.

But it wasn’t just those two countries, who are exempted from the agreed upon reductions. OPEC’s de facto leader, Saudi Arabia, also boosted output by an estimated 120,000 bpd in June, from a month earlier. That put Saudi production above 10 million barrels per day (mb/d) for the first time in 2017. Those gains, combined with the 80,000 bpd increase from Libya and a 60,000 bpd jump from Nigeria, plus some smaller contributions from Equatorial Guinea, put OPEC’s June production 340,000 bpd higher than in May. It also took the cartel’s compliance rate down to just 78 percent from 95 percent in May, the worst monthly figure for the group since its deal came into force at the start of the year.

Even worse, the production figures from Libya and Nigeria are much higher at this point than their June average. Over the past few months, the two countries have added 700,000 bpd in new supply, offsetting nearly half of the 1.8 mb/d in the combined OPEC/non-OPEC cuts. And more barrels could be on the way. Libya’s output is now above 1 mb/d, a four-year high, and Nigeria could see production “soar towards full capacity of roughly 1.8 mb/d during August,” the IEA says, up from 1.59 mb/d in June.

The IEA noted that the production cut deal is averaged over the entire compliance period through March 2018, so one month’s worth of data might not mean much. But it does not bode well. If the higher level of production continues, or if the compliance rate slips further, it would throw most projections about rebalancing out the window. “It will be a very difficult six months for the oil industry,” Fatih Birol, the IEA’s executive director, said at a conference in Istanbul. “It will be riding on the storm.”

Still, OPEC woes also mean that U.S. shale is suffering too. Prices collapsed in June, and there are many more causes for concern about the health of the shale industry than previously. The IEA said that “[f]inancial data suggests that while output might be gushing, profits are not,” with even executives from the industry saying that oil needs to be north of $50 per barrel for shale growth to be sustainable. U.S. shale might still grow in the near-term, but “the recent exuberance is being reined in,” the Paris-based energy agency concluded.

For now, though, non-OPEC supply is depressing the oil market. Global oil production is up 1.2 mb/d from a year ago, and “non-OPEC [is] firmly back in growth mode,” the IEA said in its report. Next year, things don’t get much better. Non-OPEC countries – led by the U.S., Canada and Brazil – will add 1.4 mb/d of new supply, enough to meet the entire growth in global demand. As such, any gains in output from OPEC would merely return the market to a surplus. That raises a very big question about what OPEC plans on doing after March 2018 when its deal expires. For now, it has no “exit strategy.”

The silver-lining for oil prices is that demand was much more robust in the second quarter compared to the first, leaping from 1 mb/d to 1.5 mb/d. The IEA revised up its overall 2017 demand growth figure to 1.4 mb/d, an increase of 0.1 mb/d compared to last month.

Putting supply and demand together, the IEA predicts that global inventories should have drained at a rate of 0.7 mb/d in the second quarter, although incoming data suggests the drawdowns might not have actually occurred at such a pace.

Ultimately, the message from the IEA was much more pessimistic than in previous months. In May, the agency said that the “rebalancing is essentially here and, in the short term at least, is accelerating.” But that bullish sentiment has all but vanished. “[W]e need to wait a little longer to confirm if the process of re-balancing has actually started in 2Q17 and if the waning confidence shown by investors is justified or not,” the IEA wrote this week.

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Snaffew's picture

ramp buy any dip in all sectors...fuck it.  The fed won't let these coordinated constant bid equities drop...they cannot be called markets anymore...if someone was selling tomatoes from a street stand in italy, and there were literally billions of tomatoes falling off the vines, this is equivalent to prices going up each and every day until each tomato is valued at $27 even though you are tripping over tomatoes to buy from this stand simply because the price keeps rising.  Now that is fucked up---the US and global markets are one big overpriced tomato stand---the shit is not worth it.

Peacefulwarrior's picture

Sometimes the eyes are witnesses most unreliable, they see only what they want to see...

Snaffew's picture

you must be right...everything is a bargain...buy all---it will only go up.

Cordeezy's picture

The Oil price is not sustainable at current levels.  If it stays above $45 more substitutes will be a viable option.

 

www.escapeamazon.com

 

 

adr's picture

I ask: What purpose in there in the millisecond trading of oil contracts? 

What point is there in a price gyrating up and down 3-5% almost every few minutes? 

Remember when a $20 increase in oil prices only happened during war or major supply disruption? 

We have more oil in storage than when oil fell to $26 and more supply, yet prices doubled. When oil was flirting with falling below $75, gasoline prices dropped below $2. Yet with oil in the mid $40s, gasoline is flirting with $2.50 and premium is close to $3.00. In states like PA and CA, reg gas is already almost $3.00.

Cheap oil, expensive gas. 

AND WE'RE EXPORTING RECORD AMOUNTS OF CRUDE AND REFINED PRODUCTS!!! 

The gangrape of the average American continues unabated. Every day adding more to the line.