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Oil and Gas Roundup — Jan. 26

January 14, 2015
TOPICS: In the news
A roundup of oil and natural gas industry news from around the state, nation and world:

Oklahoma rig count declines by 8

Oilfield services company Baker Hughes Incorporated says the number of rigs exploring for oil and natural gas in the U.S. fell by 43 this week to 1,633.

The Houston firm said Friday in its weekly report 1,317 rigs were exploring for oil and 316 for gas. A year ago 1,777 rigs were active.

Among the major oil- and gas-producing states, Texas' count declined by 13, North Dakota dropped nine, Oklahoma fell eight. Colorado's rig count was unchanged.

Futures for West Texas Intermediate crude priced at Oklahoma's Cushing hub closed the week at $45.59 a barrel.

Lower 48 oil production outlook stable despite expected near-term reduction in rig count

The sharp decline in oil prices over the last quarter of 2014, which has continued in January, is already having a significant effect on drilling activity in the United States, as shown by the 16% decline in the number of active onshore drilling rigs in the Lower 48 states between the weeks ending on October 31, 2014 and January 23, 2015, according to data from Baker-Hughes.

Moving from what has happened to forecasting the future is challenging, in part because market expectations of uncertainty in the price outlook have increased as reflected in the current values of futures and options contracts.

When the latest edition of EIA's monthly Short-Term Energy Outlook (STEO) was issued on January 13, the 95% confidence interval for market expectations for prices in December 2015 was extremely wide, with upper and lower limits of $28/barrel (bbl) and $112/bbl, respectively. The growing uncertainty surrounding oil prices presents a major challenge to all price forecasts.

EIA's January STEO forecasts Brent crude oil prices averaging $58/bbl in 2015 and $75/bbl in 2016, with annual average West Texas Intermediate (WTI) prices expected to be $3/bbl to $4/bbl lower.

Should its price forecast be realized, EIA projects that the number of operating rigs will decrease by approximately 24% from January to October 2015 before beginning to rebound in November 2015. However, the outlook for Lower 48 production reflects more than just the rig count.

Other key factors include the efficiency of drilling, which EIA tracks in its Drilling Productivity Report, the rate of decline in production from existing wells, and changes in the amount of time between the start of drilling and the completion of the well.

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A tale of two states and the perils of ignoring science

California and New York are often viewed as outliers -- large, influential and politically liberal states that can be either bellwethers for public policy or objects of bemusement.

Recent developments in the ongoing debate over hydraulic fracturing, however, show that these two states have fundamentally opposite approaches to "leadership" from Democratic governors.

Gov. Andrew Cuomo of New York didn't lead, but rather followed when his health commissioner announced that the state would continue its ban on fracking. This decision came despite the state's Department of Health being unable to find evidence that fracking is harmful.

While this is unfortunate for the New Yorkers, who would have benefited from the jobs and economic activity provided by the state's natural gas resources, it could be seen as a boon for neighboring states like Pennsylvania, which are now assured of the opportunity to produce not only their own energy, but some of New York's as well.

A stronger barometer of sound energy policy among progressive leaders is California Gov. Jerry Brown, who has followed the scientific consensus on fracking to its logical conclusion.

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API: U.S. petroleum demand up in December, oil production highest since 1972

Total U.S. petroleum deliveries, a measure of demand, increased 5.1% last month from December 2013 to average nearly 20 million b/d, according to the American Petroleum Institute’s monthly statistics for December 2014. For the fourth quarter, total U.S. petroleum deliveries gained 2.9% compared with the same period in 2013.

Gasoline demand last month rose by 5.4% from the prior year to average more than 9.1 million b/d, the highest December level since 2007. Deliveries of residual fuel jumped 71.8% from the prior year to their highest December level in 3 years. Demand also increased for distillate, jet fuel, and other oils.

“Even with a noticeable rise in demand, crude stocks ended higher last month than in any other December in the last 84 years,” said API Chief Economist John Felmy. “Historically high production continues to be the driving factor.”

Crude oil stocks rose 7.4% from last year to end at 383.5 million bbl—the highest inventory level for the month since 1930. Stocks of motor gasoline also ended higher last month, up by 0.4% from December 2013 levels to 228.9 million bbl. Stocks of distillate fuel and other oils increased from the prior year while jet fuel stocks fell slightly.

U.S. crude oil production last month rose to its highest December output since 1972, averaging more than 9.1 million b/d, a 15.9% increase from the previous year. This was also the highest output for any month since February 1986. Natural gas liquids production reached an all-time record high at nearly 3.2 million b/d, up 19.4% from December 2013.

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