By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia
A cloudy demand outlook is once again dominating oil markets, despite an IEA report suggesting that global stockpiles are at their lowest level in 18 years. WTI has fallen three times further than Brent (13:30GMT) to trade around the $85/bbl mark (support at 10th November low of $84.70 being tested), and both benchmarks are seeing weakness down the forward curve, with Brent’s 1st/4th contract backwardation at its narrowest since 8th September. Money managers boosted the net long in WTI and Heating Oil, in large part captured by the mini-recovery seen on Thursday and Friday last week. Once again, the NYM Heating Oil contract stands apart in its robust strength today – ship tracking data is not providing much optimism to stifled inventories in the region.
United States drilled but uncompleted (DUC) oil rigs rose for the first time in over two years; though this has often been a promising sign for production, on this occasion we believe the data are a cause for concern. A well is unable to produce crude until it has been completed; the ‘completion stage’ evaluates results of initial fracking from drilling and then installs the necessary equipment for large-scale extraction. For DUCs to rise, energy companies would be completing wells at a slower rate than they are drilling for new ones – as they did in October for the first time since July 2020. The worry here is that the rate of growth in new drills has slowed from 36 new wells per month in the first six months from October 2021 to 16 new drills per month in the subsequent six months. Meanwhile, completed wells have been rangebound during that same 12 month period (eight-month range of just 19 newly completed wells per month), which indicates completed (production-ready) wells are no longer growing in number.
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