Opening Prices:
> WTI is up 40c to $43.37/Bbl, and Brent is up 41c to $46.22/Bbl.
> Natural gas is down 8.4c to $2.573/MMBtu.
Oil traded higher on a weaker dollar; Gas price is down on cooler weather forecast.
Gulf of Mexico Update
U.S. Gulf of Mexico (GoM) crude oil output remained down 70%, or 1.29 million bbl/d, according to data released on Aug. 30 by the Department of Interior, as companies continued to return crews to offshore facilities that were evacuated ahead of Hurricane Laura.
A total of 139 platforms or drilling rigs in the U.S. GoM were unmanned at midday on Aug. 30, the department reported, down from the 310 that had been evacuated on Aug. 26.
The Port of Houston, the nation's largest energy export port, was operating normally on Aug. 30. The Ports of Texas City, Galveston, Freeport, and the Gulf Intracoastal Waterway from West Port Arthur Bridge east to High Island Bridge, also resumed normal operations, the Coast Guard said.
Closer to the storm's landfall, the ports of Lake Charles and Cameron and the Calcasieu Waterway, all in Louisiana, remained without power and were closed. The port of Port Arthur, Texas, was open with restrictions, the Coast Guard said.
The region’s offshore natural gas production remained down 50%, with 1.35 Bcf/d shut in on Aug. 30, as energy producers began to restore output that was halted ahead of Laura.
Offshore Gulf of Mexico wells account for 17% of total U.S. crude oil production and 5% of total U.S. natural gas production.
In addition to the well shut-ins, the storm prompted energy firms to suspend processing at six coastal refineries last week. Those six account for about 12% of U.S. oil processing capacity. Refineries without significant damage also began taking steps to restart operations.
Oil & Gas Prices - August 31
Oil & Gas Prices - August 31
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - August 31
A new report from Goldman Sachs received this morning says the firm has raised their oil price forecast for Brent to $65/bbl by Q3 2021.
GS comments below focus on U.S. oil production:
"Supply developments are also supportive of a tighter 2021 oil market.
> First, the rebound in shale activity remains limited, with drilling barely increasingly in recent weeks from a lower trough than consensus expected.
> Second, E&P capex guidance during the latest earnings season remained disciplined for 2021, with a clear focus on returning cash to shareholders instead of drilling.
> Third, despite significantly easier access to US High Yield debt capital, shale producers are so far not changing capex plans, instead using proceeds from new bonds issuance for debt reduction or maturity extension.
Importantly, this discipline is also visible with the two largest shale drillers, Exxon and Chevron, which were expected to become the drivers of shale growth pre-COVID. While we still believe that shale can deliver strong production growth in coming years, such a corporate shift would argue for a higher incentive price (and hence long-dated oil prices) than the industry responded to in recent years.
A bullish catalyst from shale could already occur this year, as low US activity creates downside risk to our already lowered 2H20 production path. While there still remains high uncertainty on the level of US production, our updated modeling shows that the drop in new well completion (as tracked by Kayrros) is larger than we previously assumed and will start to offset the restart of shut-in wells already in September. We now estimate that the impact of lower completion contributed to 25% of the decline in onshore production in March-May (vs. 15% previously), with the impact of shut-ins estimated at 1.8 mb/d (vs. 2.0 mb/d previously).
We further assume (1) a normalization from July in the pace of completion relative to the level of drilling activity, (2) the restart of shut-in wells from June to September (albeit with a permanent lost productive capacity of 0.4 mb/d for total liquids), (3) the horizontal oil rig count stays at its current 160 level into year-end, (4) with 125 additional wells completed out of the backlog each month starting in September. Based on these assumptions, we estimate year-end US onshore output of 8.6 mb/d vs. 8.8 mb/d previously and 3Q20 average production of 8.8 mb/d vs. 9.1 mb/d previously.
From this lower trough our 2021 production path remains unchanged with an average yoy decline of -0.4 mb/d. A slower ramp-up in activity or higher lost productive capacity from shut-ins would present downside risk to this estimate. As a result, we recommend closing our long Nov-20 Brent vs. WTI trade recommendation for a modest gain of $0.04/bbl, which was predicated on higher expected US production and, at the time of entry, stretched long WTI vs. Brent positioning."
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MY TAKE: As I have been saying in my podcasts all summer, U.S. upstream companies are NOT GOING TO INCREASE D&C SPENDING UNTIL OIL PRICES ARE MUCH HIGHER. If the number of horizontal rigs drilling for oil stays below 200 through year-end, U.S. oil production will continue to decline well into 2021 no matter how high the oil price goes because it may take a year to mobilize the 600+ drilling rigs and other oilfield services necessary to get U.S. shale back on the path to growth.
GS comments below focus on U.S. oil production:
"Supply developments are also supportive of a tighter 2021 oil market.
> First, the rebound in shale activity remains limited, with drilling barely increasingly in recent weeks from a lower trough than consensus expected.
> Second, E&P capex guidance during the latest earnings season remained disciplined for 2021, with a clear focus on returning cash to shareholders instead of drilling.
> Third, despite significantly easier access to US High Yield debt capital, shale producers are so far not changing capex plans, instead using proceeds from new bonds issuance for debt reduction or maturity extension.
Importantly, this discipline is also visible with the two largest shale drillers, Exxon and Chevron, which were expected to become the drivers of shale growth pre-COVID. While we still believe that shale can deliver strong production growth in coming years, such a corporate shift would argue for a higher incentive price (and hence long-dated oil prices) than the industry responded to in recent years.
A bullish catalyst from shale could already occur this year, as low US activity creates downside risk to our already lowered 2H20 production path. While there still remains high uncertainty on the level of US production, our updated modeling shows that the drop in new well completion (as tracked by Kayrros) is larger than we previously assumed and will start to offset the restart of shut-in wells already in September. We now estimate that the impact of lower completion contributed to 25% of the decline in onshore production in March-May (vs. 15% previously), with the impact of shut-ins estimated at 1.8 mb/d (vs. 2.0 mb/d previously).
We further assume (1) a normalization from July in the pace of completion relative to the level of drilling activity, (2) the restart of shut-in wells from June to September (albeit with a permanent lost productive capacity of 0.4 mb/d for total liquids), (3) the horizontal oil rig count stays at its current 160 level into year-end, (4) with 125 additional wells completed out of the backlog each month starting in September. Based on these assumptions, we estimate year-end US onshore output of 8.6 mb/d vs. 8.8 mb/d previously and 3Q20 average production of 8.8 mb/d vs. 9.1 mb/d previously.
From this lower trough our 2021 production path remains unchanged with an average yoy decline of -0.4 mb/d. A slower ramp-up in activity or higher lost productive capacity from shut-ins would present downside risk to this estimate. As a result, we recommend closing our long Nov-20 Brent vs. WTI trade recommendation for a modest gain of $0.04/bbl, which was predicated on higher expected US production and, at the time of entry, stretched long WTI vs. Brent positioning."
----------------------------------
MY TAKE: As I have been saying in my podcasts all summer, U.S. upstream companies are NOT GOING TO INCREASE D&C SPENDING UNTIL OIL PRICES ARE MUCH HIGHER. If the number of horizontal rigs drilling for oil stays below 200 through year-end, U.S. oil production will continue to decline well into 2021 no matter how high the oil price goes because it may take a year to mobilize the 600+ drilling rigs and other oilfield services necessary to get U.S. shale back on the path to growth.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - August 31
Closing Prices:
> WTI prompt month (OCT 20) was down $0.36 on the day, to settle at $42.61/Bbl.
> NG prompt month (OCT 20) was down $0.027 on the day, to settle at $2.630/MMBtu.
> WTI prompt month (OCT 20) was down $0.36 on the day, to settle at $42.61/Bbl.
> NG prompt month (OCT 20) was down $0.027 on the day, to settle at $2.630/MMBtu.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group