Soaring oil prices moderate as OPEC moves to turn on the taps
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Oil prices are down after news broke of an OPEC+ agreement to open up the oil taps from August, in a bid to moderate prices that had reached two and a half year highs.
Along with concerns about weak gasoline demand in the US, the benchmark West Texas Intermediate fell from US$75.25 ($101.88) per barrel last week to US$71.01/bbl.
Under the agreement, OPEC will increase oil supplies by a further 2 million barrels per day (MMbpd) from August to December, taking the total reduction down to 3.8MMbpd.
The oil cartel had slashed production by 10MMbpd last year due to impact of COVID-19 on demand and has gradually ramped up supplies since.
OPEC also expects oil demand to return to pre-pandemic levels in 2022 with annual average production reaching 99.86MMbpd next year.
The output boost comes after the US Energy Information Administration reported last week that US gasoline stocks had unexpectedly crept up from 235.5 million barrels in the week ending 2 July 2021 to 236.5MMbbl in the week ending 9 July 2021.
US completion activity, which tracks the number of spreads carrying out fracture stimulation work on shale oil wells, started July with a steady increase of four spreads.
Primary Vision says it expects to see the number of spreads rise gradually by two to four each week until it hits about 254 spreads in the middle of August.
It added that spread additions will remain gradual as operators deal with labour shortfalls and equipment repairs.
The addition of a larger number of spreads was judged by the market intelligence firm to be unlikely without further pricing improvements and bigger repairs on cold stacked equipment.
Meanwhile, the EIA forecast that US shale oil production could increase by 42,000bpd in August to 7.907MMbpd, up from a 28,000bpd increase in July.
Primary Vision also forecast that US gasoline demand would maintain a fairly stable base of between 9.2MMbpd and 9.3MMbd a day with some seasonal spikes higher.
There are a number of ASX oil and gas companies with operations in the US.
Winchester Energy (ASX:WEL) is currently preparing to production test its McLeod 1705 well in the East Permian Basin, Texas, that had intersected 8 feet of gross oil pay in the Strawn Sands formation.
This is encouraging as the same formation has produced over 200,000 barrels of oil in the nearby Bast oil field.
The company will perforate and fracture stimulate the well in late July.
Should this be successful, it will open numerous opportunities to further expand production.
Grand Gulf Energy (ASX:GGE) also has existing oil production in the US from the Desiree and Dugas & Leblanc #3 fields.
Desiree produced 4,339bbl of oil during the March quarter while Dugas & Leblanc #3 field produced 5,404bbl in the same period.
Byron Energy (ASX:BYE) currently has net oil and gas sales of 1,236 barrels of oil and about 9.5 million cubic feet of gas per day.
It plans to drill the SM69 E2 well in August and pending successful results from this well, will finalise the SM58 G3 and G4 wells.