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U.S. Shale's "Long Sideways” Movement Suggests Room to Run

  • U.S. oil drilling activity hit a 29-month low last week.
  • In the course of the past nine months, StanChart says that there has been no indication whatsoever of sustained growth in U.S. crude oil production.
  • Investors are still hovering around in uncertainty over whether or not the Federal Reserve will cut rates still this year.

While last week’s rig count from Baker Hughes showed U.S. oil drilling activity still in a downward trajectory, hitting a 29-month low, Standard Chartered suggests that neither the output slowdown nor the seemingly hesitant drilling has been priced into the market yet.

Since November 2022, U.S. drilling activity has plunged 23%, with Standard Chartered noting that “several large companies seem to have moved far away from growth maximisation and are now close to a policy of simple output maintenance,” despite rising crude oil prices.

In the course of the past nine months, StanChart says that there has been no indication whatsoever of sustained growth in U.S. crude oil production. Right now, production is sitting at around 13.2 million barrels per day. And while there was a nice growth spurt last December of over 1 million bpd, for June this year, it has been downhill, with growth at only 0.3M bpd for June.

This is no real surprise, and despite all of this, StanChart’s Bull-Bear index is still gaining momentum on the bull side of things. Following last week’s crude oil inventory data from the Energy Information Administration (EIA), StanChart’s U.S. oil data bull-bear index rose 35.3 week-over-week to +15.0. Why the bullish bump? While the EIA’s weekly stockpile data showed oil inventories shedding 2.55 million barrels to just over 457 million barrels, relative to the five-year average, stockpiles are still lower and largely unchanged. At the same time, the week-on-week crude oil balance improved in terms of the trade balance, though June demand indicators are unimpressive.

For the month of May, we saw Brent crude oil prices sitting at around $82 per barrel, on average, down $8 per barrel from the previous month. In the first week of June, we also saw prices shed more gains after the OPEC+ announcement that oil output cuts would remain in place through the third-quarter of this year, with the EIA saying that it expected lower OPEC+ production for the rest of the year, estimating oil prices to average around $85 per barrel for the second half of this year. The EIA expects “more oil will be withdrawn from global inventories in 2H24 than we did last month”.

“We now expect OPEC+ will not begin relaxing voluntary cuts until 4Q24, in line with the group’s recent announcement. Although crude oil prices initially fell following the OPEC+ announcement, we expect the extension of all voluntary cuts through 3Q24 will cause global oil inventories to continue falling through 1Q25 and put upward pressure on oil prices over that period,” the EIA said on June 11.

This week’s EIA data will be released on Wednesday, and was preceded today by data from the American Petroleum Institute (API), which showed U.S. crude stockpiles up by 914,000 barrels for the weekend ended June 21, while gasoline inventories were up by 3.843 million barrels.

At the same time, investors are still hovering around in uncertainty over whether or not the Federal Reserve will cut rates still this year, and when, though the most recent indications are that the market could potentially expect one in September this year, followed by two more in 2025. Federal Reserve Governor Lisa Cook reiterated on Tuesday that a rate cut is likely, assuming the economy performs as expected.

On Tuesday at 5:50 p.m. ET, Brent crude was trading just two pennies shy of $85, while West Texas Intermediate (WTI), the U.S. crude oil benchmark, was trading at $80.83, with lackluster U.S. consumer confidence and a slower-than-expected start to the summer driving gasoline demand.

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on June 26 2024 said:
    The hype by the US Energy Information Administration (EIA) and its cheerleaders the IEA and Rystad Energy about the continued growth in shale oil production continues unabated despite many indications to the contrary.

    Among the indications are Baker Hughes' continued rig count decline, a 23% plunge in drilling activity since November 2022, a marked reduction in well productivity and rising costs of production suggesting that the best and most lucrative spots in the shale plays have been virtually exhausted. And yet, the EIA still talks about a US production of 13.2 million barrels a day (mbd). This includes some 5.2 mbd of condensate and natural gas liquids (NGLs) which petroleum exchanges around the world neither classify them as crude nor are sold as one, They are sold as diluents for blending with heavier crudes. Deducting these from the total gives an oil production of only 8.0 mbd and ranks the US third behind both Russia and Saudi Arabia,

    Moreover, claims by the EIA are part and parcel of the deliberate manipulation of the global oil market by the United States aimed at forcing crude oil prices down.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment

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