Oil-directed rig count falls for seventh time in past eight weeks

The number of active U.S. oil and gas rigs fell to 664 this week, down 34 from a week ago and off 1,086 from the count a year ago, according to Baker Hughes’ data released today. The number of oil-directed rigs dropped by 20, falling for the seventh time in the past eight weeks. U.S. oil prices this week have fallen to a 12-year low and are trading near the $33/bbl level.

HPDI data shows 714 active rigs this week, down seven rigs from 721 a week ago and well below the 778 rigs active three weeks ago. The chart below (click on chart to expand in separate window) shows how the number of active rigs has fallen as WTI prices have dropped.rig count

Baker Hughes said U.S. drillers idled 963 oil rigs in 2015. That’s the first annual drop since 2002, and largest single-year decline since 1988. The company said that over the previous five years (2010-2014) producers had added an average of 216 oil rigs per year.

The rig count in Canada jumped by 83 week-over-week, doubling to 166, with Canadian operators able to move more rigs on frozen ground. The number of active rigs in Canada is still down 200 from a year ago.

Baker Hughes reported the December international rig count at 1,095, down 14 from the previous month and off 218 from December 2014.

EIA reports 113-Bcf withdrawal from gas storage

Natural gas storage inventories declined by 113 Bcf for the week ended Jan. 1, per EIA. The implied withdrawal was actually 117 Bcf as some reclassifications from base to working gas were noted in the South Central region, specifically from the non-salt facilities.

The draw was bullish as market expectations were in the 90s to low 100s and forward prices reacted with increases of 10 cents after the release.

Natural Gas

Today’s withdrawal finishes the 2015 calendar year with U.S. storage inventories at record highs. The 3.643-Tcf level is 17% above 2014, 15% above the 5-year average, and 5% higher than the prior 5-year max.

Upcoming storage draws are expected to land in the mid- to high 100 level as cold weather is materializing. Despite cooler temperatures, early projections of strong withdrawals show smaller-than-historical values. Natural gas prices have recovered from their December lows, but weather forecasts call for warmer temperatures in the coming weeks, so expect downward pressure on prices.

Crude oil stocks drop, but decline offset by huge product builds

By Sarp Ozkan
Ponderosa Energy

U.S. crude oil stocks declined 5.1-million barrels last week, but this decline was more than offset by huge builds in gasoline and distillates (10.6 MMbbl and 6.3 MMbbl, respectively). The huge builds in products led to a total petroleum stocks build of 7.3 MMbbl. See a graphic illustration of today’s EIA report here: PonderosaEnergyWPSR01012016

Lack of demand was the driver, as total products supplied for the past month fell by 2.5% in relation to the
same period last year. Gasoline demand was down 3.6% from the same four-week period last year and distillate demand was off  9.3%.

Even with lower crude oil prices, production increased by 17 Mb/d last week. These bearish indicators  have resulted in lower WTI prices this morning, with the front-month contract trading at $34.45/bbl at the time of writing, down $1.52/bbl. The Brent front-month contract is also trading down $1.94/bbl at $34.48/bbl at the time of writing. crude oil barrels

Continuing tensions between Saudi Arabia and Iran are adding to the concerns of a long-lasting oversupply situation, with many believing that the rift between the two OPEC members makes any chance for a quota cut unlikely. Saudi Arabia is not likely to cut output in this situation, particularly because Iran would regain market share.

Bearish Chinese demand data also has been a concern, with the slower pace of demand growth making a correction of the imbalance more prolonged. Inventories of crude oil and refined products are near or at record highs everywhere around the world, and there is concern that some regions could run out of storage space. There are definitely more bearish signs out there than bullish. There exists more pressure on prices to the downside at the moment. If demand doesn’t show up, and it appears unlikely that it will, we could see new lows.

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Ponderosa Energy’s Weekly Market Bulletin

• Flooding in Missouri and Illinois is impacting crude movements into and out of the area with two pipelines currently offline (Enbridge Ozark from Cushing to Wood River, and Spectra’s Platte pipeline from Guernsey to Wood River). Product terminals also are being impacted because 50 miles of the Illinois River and 81 miles of the Mississippi River have been closed. There are no refinery shutdowns as of this writing, though refinery operations along the Mississippi are at risk if flooding persists. Ponderosa expects the Ozark pipeline shut-in will push Cushing crude stocks higher this week. Sustained flooding may impact terminal and refinery operations through January based on current forecasts.

• EIA reported a 2.6-MMbbl increase in commercial crude oil inventories last week, in line with market expectations and Ponderosa’s current view of U.S. fundamentals. Ponderosa thinks another crude stock build is likely this week. Expect slight downward price pressure.

• Natural gas production declined almost 4 Bcf/d, from 72 Bcf/d to nearly 68 Bcf/d between Dec. 20 and Dec. 28. The drop was largely a result of freeze-offs, and expansion tie-ins in the Northeast, though nearly 1 Bcf/d can’t be attributed to short-term events and is likely a result of voluntary shut-ins and new-well-in-service delays in the face of low prices. Current production has rebounded to 69 Bcf/d. Expect a recovery above 70 Bcf/d as weather-related drops come back online.

Natural Gas • Final, full-year 2015 earning calls will begin their release on Jan. 8 with Synergy Resources, and continue through March. In the Q4 earnings calls, Ponderosa expects further decreases in capital expenditures (capex) in 2016, but no significant change in production in 2016 from 2015 levels given the seemingly ever-decreasing production costs. Ponderosa also expects producers will continue their cost-reduction efforts in both drilling/completion and operating expenditures going forward in light of the low-price environment.

• The first crude export cargo since the repeal of the crude export ban departed from the NuStar terminal at Corpus Christ, Texas, on Dec. 31. Enterprise Products Partners announced on Dec. 23 that it will load its first export of crude oil from the U.S. during the first week of January (the 600,000-barrel cargo of light crude oil is expected to originate from Enterprise Hydrocarbon Terminal on the Houston Ship Channel). Ponderosa expects crude exports will be minimal for at least six months due to the lack of WTI/Brent spread, weak crack spread due to weak distillate prices (relative to gasoline), and short-term export infrastructure bottlenecks.

U.S. crude inventories fall 5.9-million barrels

EIA on Wednesday said U.S. commerical inventories of crude oil dropped by 5.9-million barrels during the week ended Dec. 18. Crude oil prices rallied on the news, with the February contract up $1.47 as of this writing to $37.61 (WTI). Brent rose $1.10 to $37.21.1

U.S. imports of crude oil also fell during the week, dropping to about 7.3 MMb/d, nearly 1-MMb/d lower than the prior week. Refinery inputs averaged about 16.5 MMb/d, off 143 Mb/d from the previous week. U.S. refineries operated at 91.3% of their available capacity.

Ponderosa Energy’s Weekly Market Bulletin

  • Natural gas is likely to continue to trade this week at the lowest levels since 1999. Forecasts call for a “blowtorch” weather pattern across the eastern US, which could bring the warmest Christmas Day temperatures on record to much of the Midwest, Southeast and East Coast. About 2,000 high-temperature records have been set in the Lower 48 through the first two weeks of December.
  • Early projections for Thursday’s EIA gas storage report are calling for another low weekly natural gas storage draw, potentially below 20 Bcf, which compares to a 51-Bcf draw in 2014 and a 5-year average withdrawal of 122 Bcf for the week.
  • Crude oil last week traded at its lowest levels since December 2008 after a 4.8-MMbbl commercial crude inventory build. The Fed’s interest-rate hike also pressured prices. Ponderosa expects another crude inventory build this week; U.S. production is slightly declining but imports, which rose to 8.3 MMb/d this month,  are more than filling the gap. Wednesday’s storage announcement will be closely watched as another inventory build could send prices toward $30/bbl.
  • The government’s decision to lift the ban on U.S. exports of crude will have little short-term impact on prices, as actual exports are likely months away for three key reasons: The Brent/WTI spread has collapsed (with the contracts less than a dollar apart at the end of trading last week, limiting arbitrage opportunities); the crack spread has collapsed (distillate/gasoline spreads have tightened on weak distillate demand); and U.S. infrastructure to facilitate exports must be built.
  • NGL prices remain at their lowest levels since EIA began tracking prices in 2009. Propane, which like natural gas usually moves higher during winter, continues to be pressured by oversupply and lack of heating demand. U.S. wholesale prices have averaged 39.13 cents/gallon this December, compared to 55.71 cents/gallon for December 2014. Expect continued pressure due to forecasts of warmer weather for the holiday week.To subscribe to our weekly Market Bulletin, delivered via email each Monday morning at 7 a.m. Eastern time, please email MarketBulletin@ponderosa-advisors.com

Number of active U.S. oil rigs up for first time in five weeks

Baker Hughes on Friday said the number of U.S. rigs drilling for oil rose by 17 over the past week, to 541, the first rise in oil-directed rigs in five weeks. The total U.S. rig count was unchanged week-over-week at 709.

The total rig count is 1,166 lower than a year ago, and there are 995 fewer oil-directed rigs operating.

The NYMEX crude oil price for U.S. crude was at $34.59 as of this writing, down 36 cents on the day but above the daily low of $34.29.

Oil pump oil rig energy industrial machine for petroleum in the sunset background


FERC approves 7th U.S. LNG export terminal

FERC on Thursday gave its approval to construction of another U.S. liquefied natural gas export terminal. The agency backed the facility that would be operated by Energy Transfer’s Lake Charles LNG Co. and Trunkline Gas Co. in Louisiana.

The companies sought approval in March 2014. The new export terminal will be built adjacent to the existing Lake Charles LNG import terminal in Calcasieu Parish, LA. The Dept. of Energy already has approved the facility for free trade agreement (FTA) and non-FTA exports.

The Sabine Pass LNG terminal in Louisiana.
The Sabine Pass LNG terminal in Louisiana.

The Lake Charles plant is the seventh U.S. export terminal approved by FERC. The first, Cheniere’s Sabine Pass facility, is expected to ship its first cargo in January 2016. Four other terminals are under construction. A second Sabine Pass facility also has been approved and awaits construction.

The planned Lake Charles export facility would include three liquefaction trains with combined capacity of 16.45 million tonnes per annum (mtpa) of LNG. The capacity would be phased in, with the first train expected online in 2Q2019. The second and third trains would come online in 4Q2019 and 2Q2020, respectively.

EIA reports 34-Bcf withdrawal from gas storage

By Maria Sanchez
Ponderosa Energy

Natural gas storage inventories went down by 34 Bcf for the week ended Dec. 11, per EIA. The draw was below market expectations, which were calling for a 40-Bcf decline in stocks. The draw was also smaller than historical figures; a 61-Bcf draw was reported during the same week in 2014. The 5-year average for the week is a 120-Bcf withdrawal.

Natural GasOn a regional basis, only half the regions reported net draws for the week, while the West (Mountain and Pacific) reported no change in inventories and the non-salt facilities in the Gulf (South Central) showed a build of 3 Bcf.

U.S. storage inventories continue to set record 5-year highs every week. Today’s 34-Bcf draw brings inventories down to 3.846 Tcf, which is 16% above 2014, 9% above the 5-year average, and 2% higher than the prior 5-year max.

Natural gas futures prices remain trading at sub $2.00/MMBtu levels, at just above $1.80 as of this writing, but are slightly higher on the day.

Oil prices falling again after 4.8-million-barrel inventory build

By Sarp Ozkan
Ponderosa Energy

A grim, yet all-too-predictable, day for petroleum markets. Contrary to analyst expectations, crude oil stocks rose 4.8 MMbbl last week. This was not the only kick in the teeth, as both gasoline and distillate inventories rose 1.7 MMbbl and 2.6 MMbbl respectively.

In the end, total petroleum product inventories posted a 5.0-MMbbl rise last week, thanks to falling inventories of resid, propane, and other oils. Worse news yet, as even with the falling rig count, production posted a 12-Mb/d increase last week, showing its resilience even as WTI spot prices fell almost $3.50/bbl on average. Look at Ponderosa’s graphic of this week’s report here: PonderosaEnergyWPSR12112015

The global war for market share is more intense than ever after OPEC’s decision at the beginning of the month to keep output unchanged, and it is apparent in the import number. Imports posted a 291-Mb/d increase last week, marking a fourth straight week of increases, driving imports up to 8.3 MMb/d.  Imports on average for the past four weeks are 6.3% above the same period last year.

crude oil barrelsThe demand weakness is apparent, as even with low prices gasoline demand has risen only 0.5% from the same trailing four-week period last year. Distillate demand is off by a staggering 8.2%. Total product supplied was down 0.5% overall.

The low prices have crushed the distillate spread for refineries in particular, and the utilization rate reflects this; it has dropped to 91.9%. Prices have already responded, with front-month WTI at time of writing trading at $36.05/bbl, down $1.30/bbl.

The Fed decision this afternoon is likely to bring a largely anticipated interest rate hike, which will make the dollar stronger and could drive dollar-denominated commodities such as crude oil further down if indeed some players have not factored it into the price yet. Tuesday’s Congressional bill that agrees to lift the crude oil export ban as part of a spending and tax bill could be signed sooner rather than later, but the reality remains that in this environment, exports will not ease pressure on prices. Fundamentals are still showing an immense shortfall in demand and resilient supply, with the WTI-Brent spread not supporting much in the way of increased exports.

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