• 5 minutes Iran Says It Arrested 17 CIA Spies, Some Sentenced To Death
  • 9 minutes Will We Ever See 100$+ OIL?
  • 13 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 14 hours Iran Loses $130,000,000 Oil Revenue Every Day They Continue Their Games . . . .Opportunity Lost . . . Will Never Get It Back. . . . . LOL .
  • 6 hours Renewables provided only about 4% of total global energy needs in 2018
  • 3 hours Platts says if Iran's 2 mm bbls exports comes back on market oil goes to $40 . . . What about new Permian pipelines 2.47 mm bbls coming ? . . . WHAT IF BOTH IRAN AND PERMIAN TOTAL 4.47 mm added bbls . . . OMG !
  • 3 mins Today United States President Trump Questioned U.S. Policing Straights of Hormuz for Rich Asian Countries. Allies Britain and Japan asked to participate. They said NO. Nice friends, huh. US spends $100 Billion a year Protecting Mideast Shipping Lanes!
  • 3 hours So You Think We’re Reducing Fossil Fuel? — Think Again
  • 7 hours N.Y. Governor Signs Climate Bill
  • 3 hours Oil Giant Saudi Arabia Is Set to Start First Wind-Power Plant
  • 22 hours Berkeley becomes first U.S. city to ban natural gas in new homes
  • 21 hours How is E&P of Marginal Oil on the UKCS Similar to the Shale Oil Operations in the US?
  • 16 hours U.S. Administration Moves To End Asylum Protections For Central Americans
  • 3 hours EIA Reports Are Fraudulent : EIA Is Conspiring With Trump To Keep Oil Prices Low
  • 1 day Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 1 day Shale Oil will it self destruct?

Traders Grow Bearish On Glut, Rising Rig Count

Friday, July 29 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. DUC list flattens out


(Click to enlarge)

- The number of drilled but uncompleted wells (DUCs) flattened out in the first quarter of 2016, after a sharp build over much of 2015.
- As of April 1, according to Bloomberg Intelligence, there were 4,230 wells that had been drilled but not completed. That number was more or less the same from January levels.
- While some companies added DUCs to their portfolios in that time period, others began working through their backlog.
- Bloomberg Intelligence estimates that the DUC backlog could disappear in the Permian by the end of 2017 even if oil prices stand at $40 to $50. The Eagle Ford could see its fracklog 70 percent finished over that timeframe as well.
- Estimates vary on how much production the DUCs could add, from the low end of 250,000 barrels per day (Wood Mackenzie) to the most optimistic of around 1 million barrels per day (Citigroup).

2. BP cash flow not covering expenses


- BP reported another loss in the second quarter, the third consecutive quarter to do so. The oil major lost $2.25 billion, which is not quite as bad as a year earlier.
- When charges related to the Gulf of Mexico spill are stripped out, BP would have a $720 million profit. Nevertheless, BP is not generating enough cash flow to cover all of its expenses, including its hefty dividend.
- BP insists on not touching its dividend, but that means it will have to cut capex from $17 billion in 2016 to $15-$17 billion in 2017, grow its cash flow, and continue to divest itself of assets. It plans on $3-$5 billion in divestments this year plus $2-$3 billion next year. It is also taking on more debt.
- Net debt increased to $30.9 billion, the highest in four years. But the company doesn’t mind. “Money is so cheap right now,” BP’s CEO Bob Dudley said this week. “It’s a good time and we can actually manage a little bit more on the net debt.”

3. Refining margins falling


(Click to enlarge)

- The oil majors are reporting bad figures for the second quarter, with many disappointing expectations.
- Upstream units continue to lose money by and large, even though oil prices rallied by 80 percent to $50 per barrel in the quarter.
- One unexpected source of pain has been the narrowing margins for refining, which has come as a glut of gasoline and diesel has piled up in storage tanks.
- Margins are still a bit up from previous years, but between 2010 and 2014 oil prices were high, which made upstream units highly profitable. However, the second quarter of this year produced a rare combo – low oil prices and low refining margins.

4. High refining runs last winter to blame?


(Click to enlarge)

- Record high gasoline inventories have caused oil prices to fall back again. But Valero, the largest independent refiner in the U.S., says that the reason that gasoline stocks are so high is largely due to too much processing last winter, and not because of lack of demand today.
- "A lot of it is really more a result of utilisation, especially utilisation in periods where we typically see refineries cut," a Valero executive said earlier this week during its earnings call. "Typically we see refineries cutting in the fourth quarter and the first quarter, and this year we saw refineries running very high utilisation rates.”
- A steep contango earlier this year – in which front month contracts trade at a discount to contracts further off in the future – incentivized high production earlier this year.
- In other words, instead of cutting production in the winter as is usual, refineries processed summer products and put them in storage to sell at a later date. Fast forward to today and the market is oversupplied.

5. Hedge funds net length contracts falling again


(Click to enlarge)

- Speculators are growing bearish once again on oil prices. The chart above from Bloomberg Gadfly shows the net-length that hedge funds have taken on oil futures.
- The pattern of long and short bets on oil, not coincidentally, generally tracks oil prices.
- For the third year in a row, the month of July has seen a sharp selloff in net-length from hedge funds.
- Oil prices are just about at a 20 percent decline from their June highs of $52 per barrel, which would mark an official bear market.
- Also, prices will breach a 200-day moving average at $40.76 per barrel, and if they fall below that level, a sharper selloff could begin.

6. Stock prices of frac sand producers a bellwether


- The Wall Street Journal argues that frac sand producers offer an early indicator into the direction of drilling activity. If oil producers are stepping up drilling, they need frac sand for their operations.
- Frac sand sales provide a much earlier clue into drilling activity than production figures.
- The four largest publicly-traded frac sand miners have seen their share prices shoot up by 320 percent on average from their 52-week lows.
- However, share prices have since fallen back from their highpoints a few weeks ago, due to the recent downturn in oil prices.

7. South Texas continues to lose oil production


- The Eagle Ford shale continues to see oil production fall. The EIA sees output dipping by another 48,000 barrels per day in August, down to 1.079 million barrels per day.
- That is sharply lower than the more than 1.7 mb/d the region produced in early 2015.
- Natural gas production is also down, and will fall by an additional 209 million cubic feet per day in August to 5.805 billion cubic feet per day. Gas output is down more than 20 percent from the early 2015 highs.
- The good news is that the South Texas shale basin has seen some rigs start to come back. The Eagle For rig count bottomed out at about 29 in late May (26 oil rigs, 3 natural gas rigs), and has come back to 35 rigs (29 oil rigs, 6 natural gas rigs). That won’t be enough to halt the decline in production but it is a start.

That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play