Page 12 - NorthAmOil Week 20

NorthAmOil COMMENTARY NorthAmOil
US Energy Information Administration’s (EIA) latest Drilling Productivity Report, output from the US’ seven leading shale regions is projected to decrease by 197,000 barrels per day in June compared to May. The Permian is forecast to account for 87,000 bpd of this decline, with out- put there dropping to a projected 4.3mn bpd from 4.4mn bpd this month. Overall, the EIA anticipates US tight oil production contracting from a forecast 8.0mn bpd in May to 7.8mn bpd in June.
The EIA’s forecast also illustrates how associ- ated gas production in the Permian – a by-prod- uct of drilling for oil – is being hit hard, while dry gas output in regions such as the Haynesville and Appalachia is proving more resilient. The agency projects that Permian gas production will shrink by 210mn cubic feet (5.9mn cubic metres) per day between May and June. This compares with a projected month-on-month drop of 85 mmcf (2.4 mcm) per day in Appa- lachia – by far the US’ leading shale gas region – and 10 mmcf (283,200 cubic metres) in the Haynesville.
WTI gains
Despite the bleak picture painted by the US rig count’s ongoing downward trend, the industry would have been relieved this week as the WTI June futures contract expired without leaving any new price volatility in its wake. The steady rise of WTI to its highest levels in two months is being attributed to factors including supply cuts. Both domestically and internationally, ever-growing volumes are being taken offline. At the same time, there are early signs of demand
for fuel returning as lockdowns – again, both in the US and internationally – are gradually eased. US crude inventories have declined for two con- secutive weeks, alleviating immediate concerns about spare storage capacity running out and also marking a sign of recovery.
It is also worth noting that traders have been a lot more cautious after WTI prices went nega- tive as the May contract approached expiry last month.
“We find that this time around, trading has been a lot more cautious this month, making the prospect of sharp negative prices unlikely,” a Rystad Energy senior oil markets analyst, Paola Rodriguez Masiu, commented the day before the June contract expired. “The volumes of contracts that investors hold as the June con- tract approaches maturity have significantly shrunk from the equivalent last month. People don’t easily forget the hard-learned lessons, it seems.”
The improved picture as far as prices and storage go is a result of the industry mobilising to save itself, but has involved considerable sac- rifices by many producers, including in the US and Canada.
Rystad has not yet commented on this week’s reported decline in US inventories, but Rodri- guez Masiu noted that last week’s drop came as a result of floating storage coming to the rescue, rather than because the oversupply had been resolved. Thus while there appears to be more optimism than previously, the US oil indus- try still needs to proceed with caution and an awareness that the market remains extremely vulnerable to renewed volatility.™
The improved picture as far as prices and storage go
is a result of the industry mobilising to save itself, but has involved considerable sacrifices.
Traders have been a lot more cautious after WTI prices went negative
as the May contract approached expiry last month.
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w w w . N E W S B A S E . c o m Week 20 21•May•2020