Latest Market Commentary

July 17, 2017

On Friday afternoon, oil industry company Baker Hughes released its weekly rig count update. That report showed that overall the total rig count did not change, as it held steady at 952 rigs. Oil rigs were up two to 765 and gas rigs were down two to 187. U.S. rig count is up 505 rigs from last year’s count of 447, with oil rigs up 408, gas rigs up 98 and miscellaneous rigs down one to a total of 10.

Canada’s rig count is up 16 rigs from last week to 191, with oil rigs up by one to make a total of 106 and gas rigs up 15 to a total of 85. Canadian rig count is up 96 rigs from last year’s 95, with oil rigs up 62, gas rigs up by 35 and miscellaneous rigs down by one to make zero.

The Houston Chronicle wrote an article over the weekend stating smaller Permian shale producers are begging to feel the impact from lower oil prices, and warning that they might have to postpone exploration and production plans, as well as slow down hiring. At this point, most of the larger companies are still very active, but the market will continue to watch these developments as the market moves forward in time and the price of crude oil fluctuates.

Production costs for shale are also on the rise, adding to the concerns of where shale output might be headed. John Kemp, a Reuters analyst, wrote in a recent report that U.S. oil and gas exploration and production companies are paying more to hire drilling rigs, as the number of rigs still idle after the slump has been reduced. Kemp reported that drilling costs were up 8 percent in June 2017 compared to the recent low in November 2016, according to preliminary data from the U.S. Bureau of Labor Statistics released on Thursday.

China’s oil refineries throughput are close to record highs, as June production was 46.08 million tons or 11.21 million barrels per dollar. China’s crude imports were up 13.8 percent for the first half of the year, which makes sense with the recent record output.

China’s recent GDP estimates also were better than the economist expected. To eat into this excess of crude and energy products, China and India will need to provide strong demand. Both of these companies economic outlooks look good which keeps hope alive for the bulls that soon demand from these two big energy users will be possible.

The market looks a bit mixed to start the new week. The excessive nature of the sell-off the recent lows have led the bulls to look for some type of corrective rebound. Seasonally, such a corrective rebound is a possibility. If the bulls can get some upside momentum going, then they may have the chance to see a medium term corrective rebound.

Tim Danze, MFA Oil Company Hedging Manager