Recent news of the gains in US oil extraction have produced only a limited downward effect to the global oil prices as in fact many US oil rigs are not fully assembled are ready for re-commissioning. Besides, the decrease in the Saudi oil supply to the US in another factor supporting the Brent benchmark price at around $50/bbl or higher.
While there is much speculation about the possible return of the global oil oversupply, the gains in American and European manufacturing and fuel consumption might well offset the tumble in oil prices and the OPEC oil cuts are in place and the US is still a very imports-reliant energy market.
US shale oil production hit its 18-month highest as the boost to oil prices stemming from the OPEC output cuts encouraged greater extraction in North America. Still, there is a record amount of idling oil rigs in the largest US oilfield, meaning the US capability to substantially increase oil extraction is severely limited as many rigs are not fully-assembled and ready to start pumping oil.
US oil prices rose slightly on Friday as crude imports from Saudi Arabia have decreased. Brent benchmark futures rose 9 cents per barrel overnight to $50.65/bbl, whilst US oil rose to $47.85/bbl, up 15 cents.
Between February and March, the imports of oil from Saudi Arabia dropped by 300,000 bpd. The US production currently stands at some 9.1 mln bpd, whilst US oil consumption is roughly 20 mln bpd (Energy Information Administration data), meaning the nation is still heavily reliant on oil imports. This also means the OPEC production cuts have had significant effects on the domestic US energy market, and unless the US is able to increase domestic production, fuel prices are likely to go up.
In Permian Basin in Texas, which is the largest US oilfield, a record high of 1,764 oil rigs were left unassembled in February, whilst only 395 wells were drilled, of which 300 were fully commissioned. Therefore, albeit the easing disinvestment concerns, the US still has some a ways to go to achieve full energy independence.
The oilfield land issue is another concern for US drillers. Many US energy small-caps typically rent the land under their oilrigs, and the extended period of low oil prices has affected their financial situation, where they were forced to drill and pump oil in order to keep their lease, even though oil extraction entailed pure financial losses for them.
Currently, Saudi Arabia has a $60/bbl oil price target, which they hope to achieve through the OPE consensus on production cuts by late June. Still, the large amount of under-assembled US rigs is a permanent hazard to this planning as some US drillers might have to commence oil extraction against their own financial benefit.
According to Wood Mackenzie estimates, if all the incomplete oil rigs in Permian start pumping, US production would rise by 300,000 bpd – the exact amount of the recent decrease in supply from Saudi Arabia. This would mean the Saudis would have to cut their supplies to the US to an even greater extent, focusing on their Asian and European partners instead. - Sputnik