Click to enlargeGlobal total liquids bounced by +600,000 bpd in June as Canada partially recovered from the Fort McMurray wildfire and Saudi Arabia flexed its muscles raising production by 200,000 bpd compared with May.
Not surprisingly, the oil price has wilted to the vicinity of $43/bbl. But Bull and Bear forces are beginning to equilibrate. On the Bull side for the oil price, US, European and Asian production is in decline and OPEC spare capacity is approaching wafer thin. On the Bear side, US LTO drillers are showing signs of going back to work and Saudi Arabia seems intent on flexing its production muscles to the end.
The following totals compare June 2016 with May 2016:
- World Total Liquids up 600,000 bpd
- USA down 140,000 bpd
- North America up 210,000 bpd (includes Canada rebound)
- Canada up 340,000 bpd
- OPEC up 400,000 bpd
- Saudi Arabia up 200,000 bpd
- Iran up 50,000 bpd
- Russia + FSU up 30,000 bpd
- Europe down 220,000 bpd (YOY)
- Asia down 30,000.
And on the drilling front:
- US oil rig count up 58 from the low of 27 May
- International rigs down 27 since last month
Supply and demand are approaching balance by year end that is ultimately beneficial for the oil price but higher price in the US LTO plays may lead to supply accelerating ahead of demand, once again.
This article first appeared on Energy Matters.
Figure 1 The near-term peak in the oil price (WTI and Brent) was on the 8th of June at $51. Since then, the price has fallen steadily to the vicinity of $43, where it may expect to find support.
Figure 2 At this scale, the oil price appears to be forming a reverse head and shoulders over the past year. This is bullish for the oil price going forward. While Bear forces remain, the Bull forces may be gaining ascendancy.
Figure 3 Not updated since March.
Figure 4 The US oil rig count has begun to rise, but as yet insignificantly so, to 374 on 29th July, up 58 from the low of 316 seen on 27th May. The gas rig count is trending sideways, up 4 rigs to 86 from the low of 82 seen on 3rd June. Herein lies the conundrum for the oil market. Rising price will send US drillers back to work creating a barrier to higher prices for the foreseeable future. The FT has reported that LTO from The Permian Basin can be produced for $35 to $40/barrel and The Eagle Ford for $50. For so long as drilling and manpower costs remain low, this could constrain the oil price for years to come. But declines in mature provinces, under-investment everywhere else and slowly rising demand may counter these bearish forces from US LTO plays.
Figure 5 Is this finally the bottom in US drilling or merely a pause as occurred mid-2015?
Figure 6 The near-term peak in US production was 13.24 Mbpd in April 2015. The June 2016 figure was 12.45 Mbpd, down 790,000 bpd from that peak and down a significant 140,000 bpd from last month that once again, in part, reflects data revisions to last month's figure. The decline in US production is slow and may be reversed if drilling picks up significantly in the coming months that could tend to keep a lid on price.
Figure 7 OPEC production has been rock steady for 12 months (dashed line) and currently stands at 32.25 Mbpd, up a substantial 400,000 bpd on last month. Notable movers this month were Saudi Arabia, up 200,000 bpd and Nigeria, up 140,000 bpd recovering from depressed production caused by insurgency.
Figure 8 OPEC spare production capacity continues to slide and now stands at 2.62 Mbpd. All spare capacity held in Iran has now been converted to production. OPEC spare capacity below 3 Mbpd would normally portend higher prices to come.
Figure 9 In June, Saudi production stood at 10.45 Mbpd, up 200,000 bpd from May. This is close to record production. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait where production from the Wafra heavy oil field, is now effectively zero. Saudi Arabia continues to flex its muscles and it will be interesting to see in the months ahead if the Kingdom manages to force new record highs that would validate the existence of the booked 2 Mbpd spare capacity.
Figure 10 Iran produced 3.66 Mbpd in June, up 50,000 bpd on the previous month and is now pumping at a level higher than prior capacity estimates made by the IEA. Iran has now returned to the production levels seen before sanctions were imposed.
Figure 11 ME OPEC rigs were down 1 to 148 in June and drilling in the ME remains on a cyclical high. Iran and Iraq are not shown since activity in these countries is disrupted by war and sanctions.
Figure 12 The international oil rig count was down 27 to 677 in June and has resumed its slide.
Figure 13 Russia and other FSU produced 14.06 Mbpd in June, up 30,000 bpd. There is no sign of Russian production buckling under price pressure and if anything it continues to rise slowly.
Figure 14 The cycles in European production data are down to summer maintenance programs in the offshore North Sea province. We are now coming to the cycle low as summer maintenance gets under way. Several years of $100 oil and record investment has arrested the decline of the North Sea.
To get an idea of trend, it is necessary to compare production with the same month a year ago. European production is down 220,000 bpd to 3.23 Mbpd compared with a year ago. Last year, the North Sea largely skipped over summer maintenance (note only a small dip in summer production) and the large fall this month may simply reflect this point.
- Norway June 2015 = 1.95 Mbpd; June 2016 = 1.76 Mbpd; down 190,000 bpd YoY
- UK June 2015 = 0.96 Mbpd; June 2016 = 1.03 Mbpd; up 70,000 bpd YoY
- Other June 2015 = 0.54 Mbpd; June 2016 = 0.44 Mbpd; down 100,000 bpd YoY
Figure 15 This group of S and E Asian producers has been trending sideways since 2010, but it has been trending down now for over a year. The group produced 7.43 Mbpd in June, down 30,000 bpd. Note that Indonesia (an oil importer) has rejoined OPEC, but since it is an importing nation, I chose to continue to report it with the Asian group. The OPEC production numbers are reported ex NGL by the IEA and this has meant a 170,000 bpd drop in reported Indonesian production.
Figure 16 The N America group has bounced in June as Canadian production recovers from the Fort McMurray wild fire. N American production topped in April 2015 at 20.12 Mbpd. Group production now stands at 18.76 Mbpd, up 210,000 bpd on last month and down 1.36 Mbpd from the April 2015 peak.
Figure 17 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. June production was 95.97 Mbpd, up 600,000 bpd on the month before and down 1.49 Mbpd from the Nov. 2015 peak. The bounce is largely down to partial recovery of production in Canada and robust production in Saudi Arabia.
Figure 18 Stock change = global total liquids production less demand. 2Q figures are impacted by -620,000 bpd in Canada in May, resulting from the Fort McMurray wildfire. But the market is heading back towards balance with forces driving different parts of the market in different directions.