‘Historically Low’ DUCs
How much upstream activity rises this year in the United States
remains a question. Activity continues to increase, but in modest
increments, according to Mizuho Securities USA LLC.
“We estimate that 13 rigs weekly would need to be added across
the Big 5 plays over the next eight weeks in order to reach a
sustainable level of drilling activity to maintain current U.S. oil
production volumes,” Mizuho analysts said during the second
week of the new year.
“Completion cadence across the Big 5 is likely sufficient
for growth,” but the drilled but uncompleted (DUC) inventory is
now “at historically low levels.” More drilling activity
is needed or it “could put a ceiling on U.S. supply in 2022.”
To deliver sustainable oil volumes through next year based
on current levels, “we believe the rig count across the Big 5
U.S. oil plays would need to increase by another 100 rigs, versus an 178
increase in rigs since the start of 2021,” the Mizuho team said.
“To deliver on our forecast 600,000 b/d call on year/year
U.S. unconventional oil growth to balance global markets, we
believe 121 additional rigs are necessary.” The DUC inventory
“is no longer sufficient to support current completion cadence,
as inventory relative to overall production is already less than
half average 2018-2019 levels.”
The "Good DUCs" are all gone. - Feb 9
The "Good DUCs" are all gone. - Feb 9
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: The "Good DUCs" are all gone. - Feb 9
My comments are in blue.
NEW YORK (Reuters) -Oil prices rallied on Wednesday after U.S. crude inventories dropped by nearly 5 million barrels and fuel demand rose to an all-time high, underscoring the market's ongoing tightness.
Brent crude futures settled up 77 cents, or 0.9%, to $91.55 a barrel. U.S. West Texas Intermediate crude (WTI) ended up 30 cents to $89.66 a barrel. < WTI moved over $90/bbl in after-market trading.
U.S. crude stocks fell by 4.8 million barrels last week to 410.4 million barrels, their lowest since October 2018, while overall product supplied, a proxy for demand, hit a record 21.9 million barrels per day over the past four weeks, government data showed. [EIA/S]
The heavy activity and ramp-up in U.S. refinery processing augur for a tight market for coming months.
"The data was decidedly bullish hands down - everything was bullish, with inventories at their lowest level in years," said Phil Flynn, analyst at Price Futures Group.
The market has also been supported by concerns about ongoing threats to supply in United Arab Emirates, which has been hit by attacks from Yemen's Houthi group, and over Russia due to the presence of thousands of its troops near Ukraine's border.
The Biden administration responded to high prices by again stating this week that it has been talking with large producers about more output, as well as the possibility of additional strategic releases from large consumers, as it did late last year. < Team Biden is clueless and reduced to begging for upstream companies to spend more capital to raise production in order to make his administration look good. The CEOs must hang up the phone and laugh their asses off after they hang up. Why would they to anything to help Biden?
That helped spur some of Wednesday's trading, which saw later-dated contracts outperform the front-month, said Flynn at Price Futures Group.
WTI for December delivery, for instance, gained 96 cents on the day, reducing the current backwardation in the market. Backwardation is a condition where near-term contracts are priced higher than longer-dated ones, indicating a tight market. < This may be counter-intuitive, but backwardation is actually bullish for oil prices. The front month price is like a wave that keeps building as it rolls forward to the next contract. Backwardation keeps short sellers out of the market. The natural gas market is much different because it is extremely seasonal.
Following the close of trading, the White House said U.S. President Joe Biden and King Salman of Saudi Arabia spoke on Wednesday, which included a discussion of maintaining stable global energy supplies. < I wonder if King Salman cares what Old Joe wants.
The bullish U.S. energy data offset the prospect of increased supply from Iran, which has put some downward pressure on the market this week as Washington resumed indirect talks with Iran to revive the 2015 nuclear deal. < The worst kept secret is that China has been and will continue to take all the Iranian crude oil it can get. Again, Team Biden is clueless and just grasping at straws.
An agreement could lift U.S. sanctions on Iranian oil and quickly add supply to the market, although a number of vital issues need to be resolved.
"It doesn’t look like the Iranian deal going to be signed tomorrow but there are some positive developments there," said Claudio Galimberti, senior vice president of analysis at Rystad Energy.
NEW YORK (Reuters) -Oil prices rallied on Wednesday after U.S. crude inventories dropped by nearly 5 million barrels and fuel demand rose to an all-time high, underscoring the market's ongoing tightness.
Brent crude futures settled up 77 cents, or 0.9%, to $91.55 a barrel. U.S. West Texas Intermediate crude (WTI) ended up 30 cents to $89.66 a barrel. < WTI moved over $90/bbl in after-market trading.
U.S. crude stocks fell by 4.8 million barrels last week to 410.4 million barrels, their lowest since October 2018, while overall product supplied, a proxy for demand, hit a record 21.9 million barrels per day over the past four weeks, government data showed. [EIA/S]
The heavy activity and ramp-up in U.S. refinery processing augur for a tight market for coming months.
"The data was decidedly bullish hands down - everything was bullish, with inventories at their lowest level in years," said Phil Flynn, analyst at Price Futures Group.
The market has also been supported by concerns about ongoing threats to supply in United Arab Emirates, which has been hit by attacks from Yemen's Houthi group, and over Russia due to the presence of thousands of its troops near Ukraine's border.
The Biden administration responded to high prices by again stating this week that it has been talking with large producers about more output, as well as the possibility of additional strategic releases from large consumers, as it did late last year. < Team Biden is clueless and reduced to begging for upstream companies to spend more capital to raise production in order to make his administration look good. The CEOs must hang up the phone and laugh their asses off after they hang up. Why would they to anything to help Biden?
That helped spur some of Wednesday's trading, which saw later-dated contracts outperform the front-month, said Flynn at Price Futures Group.
WTI for December delivery, for instance, gained 96 cents on the day, reducing the current backwardation in the market. Backwardation is a condition where near-term contracts are priced higher than longer-dated ones, indicating a tight market. < This may be counter-intuitive, but backwardation is actually bullish for oil prices. The front month price is like a wave that keeps building as it rolls forward to the next contract. Backwardation keeps short sellers out of the market. The natural gas market is much different because it is extremely seasonal.
Following the close of trading, the White House said U.S. President Joe Biden and King Salman of Saudi Arabia spoke on Wednesday, which included a discussion of maintaining stable global energy supplies. < I wonder if King Salman cares what Old Joe wants.
The bullish U.S. energy data offset the prospect of increased supply from Iran, which has put some downward pressure on the market this week as Washington resumed indirect talks with Iran to revive the 2015 nuclear deal. < The worst kept secret is that China has been and will continue to take all the Iranian crude oil it can get. Again, Team Biden is clueless and just grasping at straws.
An agreement could lift U.S. sanctions on Iranian oil and quickly add supply to the market, although a number of vital issues need to be resolved.
"It doesn’t look like the Iranian deal going to be signed tomorrow but there are some positive developments there," said Claudio Galimberti, senior vice president of analysis at Rystad Energy.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: The "Good DUCs" are all gone. - Feb 9
Dan, re: DUC's, what time frame are we looking at when the DUC's run out?
Re: The "Good DUCs" are all gone. - Feb 9
There are always wells waiting to be completed, so we are already back to a normal DUC inventory. What this means is that the number of wells completed this year will be close to the number of wells drilled. In 2021 there were over 2,000 more wells completed than were drilled and they were the best wells in the DUC inventory. Upstream companies were wise not to complete high-rate horizontal wells during a period of low commodity prices.
BTW a high percentage of wells in the DUC inventory are "Dead DUCs" that will never be completed; they are waiting to be plugged.
BTW a high percentage of wells in the DUC inventory are "Dead DUCs" that will never be completed; they are waiting to be plugged.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group