Oil prices down on US stock builds

"Oil prices are declining today but it’s not much of a surprise if one thinks that Brent hit new Covid-19 highs yesterday, in the same day that API reported an unexpected massive weekly stock build. A correction was due and we can see it in today’s market.

This morning, traders are trading Brent cautiously sideways after a correction down in prices during US trading hours yesterday.

The markets may soon be interpreting Donald Trump’s coronavirus press briefing positively, as it contained perhaps the most reasonable announcements on the pandemic from the US administration in a long time.

This could be a positive for oil demand prospects. Instead of an uncontrolled, disruptive second wave of lockdowns, maybe chances have now increased that the US will eventually get the spread under control.

This could be positive for oil demand in the 6-12 month horizon and beyond, but perhaps marginally negative in the very near term if voluntary social distancing increases in the US.

Meanwhile, oil traders are shrugging off the bearish surprise from the API on US crude stock changes (7.54 million barrels build) published last night.

The final verdict of last week’s US crude oil balances will be of course revealed by the DOE at 4:30 CET today, but API numbers are usually not far off.

US crude imports remains the wildcard in the noisy weekly stock report, and the market knows not to read too much into outlier figures when not considered part of a new trend.

Worth watching is the demand for safe havens such as gold and silver, with prices for both metals continuing to rise strongly, which is worth following also for the oil market.

Disagreement between the White House and the Republican congress members also shows the difficulty ahead for the economic recovery, holding market sentiment back.

So until the next fundamental news for oil supply emanates, prices will continue to be driven by sentiment factors surrounding the economy and oil demand implications.

OPEC’s tapering from August will be an experiment that could backfire still as we are nowhere near out of the woods yet for oil demand."

And a comment on US oil and gas production outlook for 2020 and 2021, from our Head of Shale Research Artem Abramov:

"US oil production is now estimated to have reached a bottom of 10.4 million bpd in May 2020, followed by the reactivation of curtailments which will be sufficient to offset the natural decline caused by low frac activity in June-August 2020. Production is estimated to bounce back toward 11 million to 11.2 million bpd range and then degrade towards 10.7 million bpd again in 4Q20 and 1Q21 as the current activity level is insufficient to offset the natural base decline. As the base decline gets shallower by early 2021, we anticipate sufficient recovery in activity from 2Q21 to 4Q21 to help return to a positive production trajectory. We maintain our estimate of 11.6 million bpd for exit-2021 production (assuming a US$45 WTI environment for 2021), which will correspond to an approximate 600 000 bpd year-over-year growth.

Nationwide dry gas production peaked in 4Q19 at more than 96 billion ft3/d and fell below 89 billion ft3/d in May-June 2020. Despite significant oil production curtailments, associated gas output remained relatively as shut-in volumes had gas-oil-ratios below basin-wide average figures. Moreover, in the Bakken and Eagle Ford, the decline rate in dry gas output was lagging behind the decline rate of gross gas production after in tandem with a significant reduction in flared gas volumes throughout 2Q20. We anticipate that nationwide dry gas production will decline by 8 billion to 8.5 billion ft³/d on a year-over-year basis by the end of 2020 (upward revision for dry gas production forecast compared to our previous estimates) as faster recovery in associated gas production is now happening across the Permian and other oil basins. Rystad Energy forecasts that nationwide dry gas production in 2020 will stay flattish at just above 88 billion ft3/d, propped up with just enough activity level and the projected modest recovery in oil regions.

The Permian is expected to drive most nationwide production recovery next year. In fact, in the current market environment, this statement is valid for both oil and dry gas output. We anticipate the Permian to deliver about 500 000 bpd of year-over-year oil production growth in December 2021 (out of 600 000 bpd nationwide growth). When it comes to dry gas, the Permian is set to deliver 1.2 billion ft3/d of year-over-year growth in December 2021 – offsetting the decline of the same magnitude coming from the rest of country."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/22072020/oil-prices-down-on-us-stock-builds/