U.S. Drillers Add Oil Rigs for 14th Week
U.S. drillers added oil rigs for a 14th week in a row, extending an 11-month recovery that is expected to boost U.S. shale production in May in the biggest monthly increase in more than two years.
Drillers added five oil rigs in the week to April 21, bringing the total count up to 688, the most since April 2015, energy services firm Baker Hughes Inc said.
That is more than double the same week a year ago when there were only 343 active oil rigs.
U.S. crude futures dropped below $50 a barrel, for the first time in two weeks and putting it on track for its biggest weekly loss in six weeks, due to doubts the
OPEC-led production cut will restore balance to an oversupplied market, especially as U.S. drillers keep producing more oil.
U.S. shale production in May was set for its biggest monthly increase in more than two years as producers stepped up their drilling activity, according to U.S. energy data.
Analysts projected U.S. energy firms would boost spending on drilling and pump more oil and natural gas from shale fields in coming years with energy prices expected to climb.
Futures for the balance of 2017 were fetching around $50 a barrel and calendar 2018 was trading at about $51. After taking a hit last year when dozens of U.S. shale producers filed for bankruptcy, private equity funds raised $19.8 billion for energy ventures in the first quarter - nearly three times the total compared with the same period last year, according to financial data provider Preqin. Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast the total oil and gas rig count would average 842 in 2017, 1,037 in 2018 and 1,170 in 2019. Most wells produce both oil and gas. That compares with an average of 762 so far in 2017, 509 in 2016 and 978 in 2015, according to Baker Hughes data.
Analysts at U.S. financial services firm Cowen & Co said in a note that its capital expenditure tracking showed 57 exploration and production (E&P) companies planned to increase spending by an average of 50 percent in 2017 over 2016.
That expected spending increase in 2017 followed an estimated 48 percent decline in 2016 and a 34 percent decline in 2015, Cowen said according to the 64 E&P companies it tracks.
Total CEO Sees Oil prices Tumble
Oil prices could fall again by the end of the year due to a rapid increase in U.S. shale production, the chief executive of French oil and gas giant Total said.
Crude has recovered from lows reached in January 2016 and has mostly hovered above $50 a barrel since the beginning of the year following an agreement by the Organization of the Petroleum Exporting Countries to cut production.
"The price may fall again ... U.S. producers who have recovered quickly, will regenerate an influx of supply by the end of the year and this could have a negative impact on the markets," Patrick Pouyanne said during a conference in Paris.
U.S. shale oil producers are planning to expand production following the rebound in prices.
"The OPEC agreement is in place and working very well," Pouyanne said. "I think it (OPEC agreement) will be extended, but in simple terms, the short-term effect on the markets is not immediate because stocks are extremely high."
Pouyanne said it will take another 18 to 24 months, rather than six months, for demand to outstrip supply.
Oil prices regained some ground after steep losses the previous day, as Kuwait said it expected the OPEC-led effort to cut supplies would be extended beyond the middle of the year.
Russia's Novatek to Keep Output
Novatek, Russia's largest non-state natural gas producer, is seeking to increase its resource base to stabilize gas output and keep its domestic market share steady, Leonid Mikhelson, head of the company, said.
Mikhelson also said import-export agencies from Germany and Sweden had agreed to help finance the Yamal LNG project, though he declined to disclose details.
Yamal LNG, with total inward investment set at $27 billion, has almost completed fund-raising thanks mainly to investors from China.
Novatek is the main shareholder in Yamal LNG, which is due to start producing liquefied natural gas this year, with a stake of 50.1 percent.
Mikhelson, Russia's richest businessman according to Forbes magazine, said the company was looking to boost its resources in the Arctic Yamal region, which accounts for around 70 percent of Russian gas resources.
"We are looking into the possibility, apart from the creation of a resource base for Yamal LNG, of creating an additional resource base in the region to increase our production potential," he told reporters before Novatek's annual general meeting in Moscow.
"I think by the end of the year we will be able to form that resource base, which will allow us to keep gas production at a steady plateau in the region and keep our share of the domestic market."
Last year, Mikhelson assessed Novatek's share of Russian gas production at 9 to 10 percent. He said its share of the domestic supply market, where state-owned Gazprom is a dominant force, was around 20 percent.
In 2016, Novatek's gas production declined by 2.7 percent to 66.1 billion cubic meters, while output of liquids, or crude oil and gas condensate, jumped by 36.8 percent to 12.4 million tonnes.
France's Total and China National Petroleum Corp each control 20 percent of Yamal LNG, while China's Silk Road Fund owns 9.9 percent.
South Korean Tender Stirs Up Market
Asian spot LNG prices jumped, buoyed by hopes Korea Gas Corp's new tender would match past buying sprees and by emerging demand from China and Japan.
Spot prices for June delivery rose to $5.70 per million British thermal units (mmBtu), but traders cited sharply divergent views on pricing, saying the disagreements contributed to market inertia.
Still, Korea Gas Corp's tender for June and July supply - set to close on April 26 - immediately stirred up bullish offers, rescuing an otherwise muted trading week.
The last time Kogas entered the market to buy two cargoes in December 2016, it ended up awarding up to 11.
That was only one of a number of factors contributing to LNG snapping a 15-week losing streak, with Japan's Tohoku Electric seeking a May/June cargo alongside trading giant JERA's limited spot needs, Portugal's EDP seeking a June/July cargo, plus demand from Spain, India and China.
But resumption in production at two Australian LNG export plants - Chevron's Gorgon and Woodside's North West Shelf - left the rationale for a price rebound less clear.
Demand, even in top-tier buyer Japan, is lackluster and weather forecasts do not support a dramatic shift any time soon. Nigeria and Russia, meanwhile, have both approached the market with new supply.
"The market in Asia is basically anywhere between $5.50-$5.80, its pretty wide and nobody exactly knows there's a lot of inertia," one trading source said.
So far, jitters over Egypt's nascent programme of cargo deferments - a potentially bearish signal for global markets - have taken a back seat to more immediate developments, such as Kogas purchases, but Egypt could come to dominate thinking once the scale of its program becomes clear.
Surging production from new gas fields is squeezing out demand for costly foreign imports, leading Egypt to consider deferring as many as 25 shipments this year and many more in 2018, according to various sources.
Yet only a small portion of deferrals have actually been agreed with Egypt's LNG suppliers so far. Most of these are trading houses but some are state-backed energy companies.
Furthermore, one trader said some sellers had hoarded supply for May in anticipation of supply disruptions that never came true.
"We will see how sellers react in June, given they lost value in May," the trader said, implying potential for supply releases.
In the Atlantic, demand continued to emerge from utilities in Spain, driven by low hydroelectric reserves, faltering renewables output and nuclear issues.
Spanish bids for LNG ranged from flat to UK gas hub prices to a 10 cent premium in some cases, several sources said.
Goldman Optimistic About Oil Market Fundamentals
Goldman Sachs Group Inc. says there’s no fundamental evidence in the oil market to justify recent selloff in prices.
The bank finds the pace of declines in U.S. crude inventories encouraging, with an acceleration in drawdowns expected through the second quarter as OPEC cuts output and demand grows, according to a report dated April 20. Meanwhile, a mid-week slide in prices was driven by crude trading through its 50-day and 100-day moving averages, Goldman said.
Goldman is reiterating its confidence in oil at a time when investors are fretting over whether U.S. production, which has climbed to the highest level since August 2015, will undermine curbs by the Organization of Petroleum Exporting Countries and its allies.
"We view technicalities rather than fundamentals as the driver of this move lower,” analysts including Damien Courvalin and Jeffrey Currie wrote in the report. The U.S. inventory data was “in line with expectations,” they said, reiterating the bank’s sequentially higher second-quarter Brent price forecast of $59 a barrel.
The sell-off occurred an hour after the release of this U.S. data and accelerated as prices traded through their 50 and 100 day moving averages, a repeat of the March 7 and October 29 sharp decline in prices,” the analysts wrote. The “decline also featured an increase in open interest, suggesting that like in these previous instances, new shorts were the drivers of the move lower.”
Goldman also believes gasoline demand is probably being understated, “with the more accurate ethanol implied demand metric pointing instead of resilient gasoline demand growth, while distillate demand remains strong,” according to the report.
“We find in fact that the U.S. inventory data since March has been surprisingly good: crude inventories have been tighter than seasonal through March and April, with main petroleum products drawing faster than seasonal since February,” the analysts wrote.
Russia to Discuss Extending Oil Cut With OPEC
Russian Energy Minister Alexander Novak said a decision on extending a global pact to cut oil production had not yet been taken, but would be discussed with OPEC on May 24.
The Organization of the Petroleum Exporting Countries and other leading oil producers have pledged to curb output by 1.8 million barrels per day (bpd), with Russia's contribution of cuts amounting to 300,000 bpd to be gradually phased in.
The goal was to reduce bulging global inventories and lift oil prices. Despite a modest recovery in the market, oil stocks remain high and the focus is now on whether OPEC and non-OPEC producers will prolong the cuts into the second half of 2017.
OPEC's next policy-setting meeting is set for May 25, with a decision expected at that time on whether to extend the curbs.
Novak said information on the oil market's situation and forecasts were being digested in order to draw a conclusion.
"The OPEC Secretariat will send the information to all the signatories of the agreement and we will discuss the issue during a ministerial meeting on May 24," said Novak.
He was believed to be referring to a joint committee of ministers from OPEC and non-OPEC producers that monitors compliance with the accord.
"There are no firm decisions on that. Each country is looking into the matter by itself so it can make its proposals and evaluations," said Novak, who was on a visit to Tokyo.
He also said Russia's oil output cuts had reached 250,000 barrels per day (bpd) and would hit a target of 300,000 bpd by the end of April.
Novak said the oil market was improving with production cuts by OPEC and non-OPEC members, including Russia, trimming a surplus that had squeezed prices for years.
"The situation has gradually been improving since the beginning of March," Novak said. "The oil surplus has been reduced. The situation is getting more and more stable and there's less volatility on the market."
Novak said current oil prices reflected the market situation, with benchmark Brent around $53 a barrel.
OPEC sources said an internal assessment was that without an extension, oil could slide to $30-40 a barrel.