Baker Hughes Report Shows 60 Fewer Active Oil Rigs
April 27th, 2020
The Baker Hughes Rig count showed that oil rigs were down 60 to a total of 378 oil rigs. Last year at this time total rigs were at 805 a 427 rig difference. The rig count has fallen drastically in the last few weeks and a decline in production is needed and will hopefully show up in the numbers soon. The big price decline for crude oil will have major and long lasting impacts on the energy business. Harold Hamm of Continental Resources Inc shut down wells in Oklahoma and North Dakota last week stating that the company could not make crude deliveries to customer due to poor economics. This declared force majeure is usually reserved for events like war or natural disasters. This decision will be debated and will likely end up in a legal battle. Harold Hamm is likely taking this action to draw attention to the matter, as he was also the person who raised questions about crude futures trading negative and called for a full investigation.
Russia is looking for ways to cut production as they are part of the group OPEC+ that has agreed to cut production by nearly 10 million barrels per day. It has been reported that Russia is even considering burning some of their oil to make their agreed to cuts. More than likely they will put some wells on maintenance and some older wells could be totally abandoned. The fact that just burning the oil is in the discussion is an indication of how much global supply excess there is currently.
Last week Mexico declared force majeure on importing gas and diesel, which mainly come from the US. Their demand has fallen off just like everywhere else and they have no room to store it. Most US refiners cannot sell these products somewhere else as it has specification unique to Mexico.
The World Bank cut its crude oil forecast for 2020 to just $35 dollars mainly due to lower world demand from the coronavirus pandemic. Their outlook sees a deep recession in 2020, with developing economies output contracting by 2%. This is the outlook assuming all goes correctly.
S&P Global Platts cFlow is currently estimating that some 44 million barrels of Saudi crude oil are still headed toward the US over the next four weeks. Most of this crude appears headed to Texas, Louisiana and California. Some of the Texas volumes are headed to Motive’s 600,000 barrel per day refinery which is owned by Saudi Aramco.