Drop in US Crude Oil Output Not Enough to Support Prices
- Bakken output fell year-on-year in September
- 3,000 wells in U.S. “fracklog”
- 3. US oil stocks still growing
- Natural gas storage reached record 4 Tcf.
The Matrix
Concrete evidence of crude oil production slowing in the United States comes from North Dakota. Soft oil prices and relatively high costs of moving Bakken crude oil to refinery centers has cut demand for North Dakota’s crude oil. Less Bakken was produced in September than during September, 2014. Such a pattern has reportedly not occurred for more than ten years.
The drop in output reflects higher costs of rail and truck transport from this remote region. So the Bakken decline could be an outlier, not a bullish precursor of broader national trends. There are considerations that could put a top on prices even should a rally occur.
North Dakota operators are delaying hydraulic fracturing, waiting for higher prices. The “fracklog,” the number of wells drilled but not completed, stood at 1,091 in September. State officials say this is the first time the fracklog exceeded 1,000. Nationally, the fracklog exceeds 3,000 wells. They are a barrier to materially higher prices.
Bearish factors still control oil prices. And ostensibly bullish implications of terrorist events in Paris are likely to be offset by reluctance to fly in Europe and other negative economic impacts.
The bearish situation is exemplified by burgeoning oil in storage. One analyst estimates that on-land global storage, apart from the United States, has only 47 million barrels remaining. Floating storage of crude oil and products is around 100 million barrels.
Crude oil storage in the U.S. is marginally better. Gulf Coast fill is around 250 million barrels against a top of 297 million barrels. Midwest storage outside of Cushing OK is around 85 million barrels.
Total regional availability is 140 million. In Cushing, supply is 57 million barrels with a total availability of 71 million barrels.
The global demand outlook is problematic. Lower prices have supported demand, but as lower prices become more the norm, the effect of unattractive economics could cut into demand. Growth in emerging markets is slowing as is the growth in world trade.
Supply/Demand Balances
Supply/demand data in the United States for the week ending November 13, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 0.2 million net barrels during the week ending November 13, 2015.
Draws were reported in stocks of K-jet fuel, distillates, and other oils. Builds were reported in stocks of RBOB, fuel ethanol, residual fuel oil, and propane.
Crude oil supplies in the United States increased to 487.3 million barrels, a build of 0.3 million barrels.
Crude oil supplies increased three of the five PAD Districts. PADD 1 (East Coast) crude oil stocks added 1.1 million barrels, PADD 2 (Midwest) stocks increased 1.5 million barrels, and PADD 4 (Rockies) stocks rose 0.3 million barrels. PADD 3 (Gulf Coast) crude stocks experienced a draw of 2.5 million barrels and PADD 5 (West Coast) stocks declined 0.2 million barrels.
Cushing, Oklahoma inventories increased 1.5 million barrels to 56.9.
Domestic crude oil production decreased 3,000 barrels daily to 9.182 million barrels per day.
Crude oil imports averaged 6.968 million barrels per day, a daily decrease of 409,000 barrels.
Refineries used 90.3 per cent of capacity, an increase of 0.8 percentage points from the previous report week.
Crude oil inputs to refineries increased 137,000 barrels daily; there were 16.076 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 142,000 barrels to 16.311 million barrels daily.
Total petroleum product inventories saw a decrease of 0.1 million barrels. Gasoline stocks increased 1.0 million barrels; total stocks are 214.3 million barrels.
Total product demand decreased 344,000 barrels daily to 19.465 million barrels per day.
Demand for gasoline decreased 334,000 barrels per day to 9.054 million barrels daily.
Distillate fuel oil supply decreased 0.8 million barrels. National demand was reported at 4.157 million barrels per day during the report week. This was a weekly increase of 344,000 barrels daily.
Propane stocks increased 0.5 million barrels to 104.5 million barrels. Current demand is estimated at 0.967 million barrels per day, an increase of 111,000 barrels daily from the previous report week.
Natural Gas
According to the EIA:
Working gas in storage was 4,000 Bcf as of Friday, November 13, 2015, according to EIA estimates. This represents a net increase of 15 Bcf from the previous week. Stocks were 404 Bcf higher than last year at this time and 207 Bcf above the five-year average of 3,793 Bcf. At 4,000 Bcf, total working gas is above the five-year historical range.
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