U.S. Energy Companies Cutting Spending
November 18th, 2019
The Baker Hughes Rig Count said that 10 crude oil rigs came offline last week. The total number of rigs looking for oil is down to 674 rigs compared with 888 rigs last year at this time. Despite the record US crude oil production last week in the DOE report, the rig count has fallen sharply over the last six months and at some point, the decline in the rigs should show up in the production numbers.
Iran saw people protesting over the weekend as the government raise petrol prices and said they made need to begin rationing. This is just another sign that the sanctions on Iran continue to impact the country.
The IEA said OPEC and its allies face stiffening competition in 2020, adding urgency to the groups policy meeting next month. It said OPEC+ countries face a major challenge in 2020 as demand for their crude is expected to fall sharply. Demand for OPEC crude in 2020 is forecast to total 28.9 million bpd, 1 million bpd below current production levels. It stated that non-OPEC supply estimates to increase by 2.3 million bpd next year capered with a growth rate of 1.8 million bpd in 2019.
The US shale industry plans another spending freeze next year, a sharp slowdown in production growth, as increased oil and natural gas output has pressured price and squeezed profits. Growth in shale fields has increased US crude oil output to a record 13 million bpd this month. According to US financial services firm Cowen & Co, producers have already stated that they expect to spend about $4 billion less in 2019 than in 2018. So far 21 exploration and production companies tracked by Cowen have released their 2020 capex guidance with 15 projecting declines, five with increases and one unchanged for a 13% year-on-year spending decline.
The EIA continue to call for production to increase for US crude oil output next year but at a slower rate. The outlook from EIA is for a 1 million bpd increase for next year. Goldman Sachs is forecasting 600,000 bpd and IHS Markit is calling for just 440,000 bpd.
Reuters reported that US energy companies will cut spending again in 2020 which will be the second year in a row for cuts. US shale companies continue to try and shove up their finances and keep investor happy by showing better returns.
Russia’s Energy Minister, Alexander Novak, said Russia will receive an additional 2 trillion rubles or $31 billion in revenue this year from the global output cut deal between OPEC and its non-OPEC allies.
The market has continued to rally on the hope for a US and China phase 1 trade deal. The market has now ridden this wave of optimism about as far as it can without something concrete taking place. Traders are taking some profits this morning after a strong close to end last week. The markets are all likely to continue in their trading ranges as traders wait and watch trade war negotiations and OPEC’s production decision at the December 5th meeting.