Rigs rebound shows Shale boom resilience
US oil drilling increased for the first time after 29 weeks of declines signifying that US oil production may start to increase more strongly again after a slowdown due to a period of low oil prices. Oil rigs increased by 12 to 640 following a slump that cut the number of active US rigs from a peak of 1,609 in October to a nearly five-year low last. It is also instructive that the increase in rigs comes amidst oil at a lower price.
The rising US rig count adds to near-record production by Russia and the Organization of the Petroleum Exporting Countries, which is feeding a huge oversupply. The sudden rebound reveals resilience for US shale as the battle for global market share intensifies. Producers could add about 100 oil rigs by the end of the year. As activity increases, the cost declines may come to an end.
With the collapse in oil prices, shale explorers have brought down their break-even costs by $15 to $20/bbl. The costs of various drilling services have fallen by 20 percent to 50 percent in the US say analysts. The break-evens in plays including parts of Texas’s Permian basin and Eagle Ford shale formation and the South Central Oklahoma Oil Province, known as SCOOP, are below $40 per barrel.
US oil explorers are homing in on their most productive areas and re-negotiating drilling costs as they face increasing competition from the Organization of Petroleum Exporting Countries (OPEC). The 12-nation group, which accounts for more than a third of the world’s crude supply, has resisted calls to curb its own output and instead pumped the most last month since August 2012.
OPEC production keeps surging
OPEC oil supply was at a three-year high due to record or near-record output from Iraq and Saudi Arabia. The cartel’s production is close to 2.5 million bpd above demand, filling stocks worldwide. Iraqi crude production climbed to a record this month, helping send OPEC output to the highest level since August 2012.
Output by the OPEC climbed 744,000 barrels to 32.134 million a day this month. Last month’s total was revised 189,000 barrels lower to 31.39 million a day, because of changes to the Saudi, Iraqi, Algerian and Nigerian estimates.
OPEC has been boosting supply as it seeks to force higher- cost producers to cut output. The 12-member group agreed on June 5 to retain its collective output target of 30 million barrels a day, a level that it has exceeded for 13 months.
Iraqi production rose 567,000 barrels a day to a record 4.388 million this month, according to the survey. Iraq, OPEC’s second-biggest producer, was responsible for more than half of the total gain this month. Saudi Arabia, OPEC’s top producer, increased output by 150,000 barrels a day to 10.45 million in June. The kingdom exported more crude because of higher Asian demand.
Iran may alter market dynamics
Iranian production rose 50,000 barrels a day to 2.85 million this month, leaving output at the highest level since March 2014. The nation pumped more than 3.1 million barrels a day from 1991 until July 2012, when additional sanctions were imposed on the Islamic republic to curb its nuclear program. Iran has estimated it could double exports from about 1 million barrels a day within six months of sanctions being lifted.
“The second half of the year will be very challenging for OPEC, especially if there is an Iran deal,” Kilduff said.
Libyan output slipped 15,000 barrels a day to 400,000, the second-biggest decline this month. The country’s current output is about a third of what it was before the 2011 rebellion that ended Muammar Qaddafi’s 42-year rule.
Brent crude for August was down 45 cents at $61.62 a barrel, extending a downward trend in place since early May, which has seen prices fall almost 10 percent. Front-month US crude was at $56.56, down 37 cents, dropping below a trading range of $57 to $62 seen since early May.
FRANK UZUEGBUNAM