OilPrice.com reports that oil
prices have stabilized somewhat around the $60 per barrel mark, and
over the past few weeks oil has shown less volatility than what we have
grown used to in the preceding six or seven months.
But another swoon could be just over the horizon. That is because oil producers are starting to run out of storage. As production has soared and global demand has failed to keep up, oil producers have been diverting oil into storage tanks at a remarkable rate since last summer.
The latest EIA data shows that weekly inventories jumped by another 7.7 million barrels, with total inventories now having reached 425.6 million barrels. That is the highest level of oil sitting in storage in over 80 years, and more than 20% higher than the five-year average.
The data is also important because it highlights two things. First, oil production has not leveled off yet, despite several months of prices sitting below the breakeven mark for many producers. But also, the data indicates that U.S. producers may soon start to top off storage tanks. If production does not decline and oil storage capacity begins to run out, the glut of oil on the market could worsen pretty quickly, sending prices down once again.
Rig counts continue to decline amid weak prices. Data from North Dakota shows that drillers are retreating to core production areas, or “sweet spots.” The number of North Dakota rigs in operation has fallen from 190 to 121, dipping below a key threshold of 130 that state regulators believe is critical to keeping production from contracting. But importantly, rig counts have fallen much quicker in the periphery, with rigs becoming increasingly concentrated in just four North Dakota counties that account for 89% of the state’s production. Still, the core areas are not necessarily safe, and a few more months of weak prices could finally lead to a drop in production.
On the other side of the world, the Russian Arctic is also seeing a pullback in activity. Although the culprit is not entirely, or even primarily, the collapse of oil prices, Russian state-owned firm Rosneft has announced plans to postpone exploration of 12 Arctic licenses. Rosneft had ambitious plans to tap Arctic oil with the help of several international oil majors, but western sanctions have forbidden the involvement of those firms. While the Russian government originally scoffed at western sanctions when they were introduced last year, the major delay to Russia’s Arctic dreams demonstrates that the West’s ploys are having a bite.
EU-Digest
But another swoon could be just over the horizon. That is because oil producers are starting to run out of storage. As production has soared and global demand has failed to keep up, oil producers have been diverting oil into storage tanks at a remarkable rate since last summer.
The latest EIA data shows that weekly inventories jumped by another 7.7 million barrels, with total inventories now having reached 425.6 million barrels. That is the highest level of oil sitting in storage in over 80 years, and more than 20% higher than the five-year average.
The data is also important because it highlights two things. First, oil production has not leveled off yet, despite several months of prices sitting below the breakeven mark for many producers. But also, the data indicates that U.S. producers may soon start to top off storage tanks. If production does not decline and oil storage capacity begins to run out, the glut of oil on the market could worsen pretty quickly, sending prices down once again.
Rig counts continue to decline amid weak prices. Data from North Dakota shows that drillers are retreating to core production areas, or “sweet spots.” The number of North Dakota rigs in operation has fallen from 190 to 121, dipping below a key threshold of 130 that state regulators believe is critical to keeping production from contracting. But importantly, rig counts have fallen much quicker in the periphery, with rigs becoming increasingly concentrated in just four North Dakota counties that account for 89% of the state’s production. Still, the core areas are not necessarily safe, and a few more months of weak prices could finally lead to a drop in production.
On the other side of the world, the Russian Arctic is also seeing a pullback in activity. Although the culprit is not entirely, or even primarily, the collapse of oil prices, Russian state-owned firm Rosneft has announced plans to postpone exploration of 12 Arctic licenses. Rosneft had ambitious plans to tap Arctic oil with the help of several international oil majors, but western sanctions have forbidden the involvement of those firms. While the Russian government originally scoffed at western sanctions when they were introduced last year, the major delay to Russia’s Arctic dreams demonstrates that the West’s ploys are having a bite.
EU-Digest
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