US shale ‘Long Sideways’ movement suggests room for maneuver

While Baker Hughes’ drilling rig count last week showed that US oil drilling activity was still on a downward trajectory, hitting a 29-month low, Standard Chartered suggests that neither the slowdown in production nor the seemingly hesitant drilling have yet to be priced in by the market.

Since November 2022, drilling activity in the United States has plunged 23%, with Standard Chartered noting that “several large companies appear to have moved away from maximizing growth and are now close to a policy of simply maintaining production”, despite the rise in crude oil prices.

Over the past nine months, StanChart says there has been no indication of sustained growth in U.S. crude oil production. Currently, production stands at about 13.2 million barrels per day. And while there was a nice burst of growth of over a million b/d last December, in June of this year it has been on a downward slide, with growth of just 0.3 million b/d for June.

This isn’t really a surprise, and despite all of this, StanChart’s Bull-Bear Index continues to gain momentum on the bullish side. Following last week’s crude oil inventories data from the Energy Information Administration (EIA), StanChart’s U.S. oil data Bull-Bear Index rose 35.3 week-over-week to +15.0. Why the bullish surge? While the EIA’s weekly inventories data showed oil inventories fell 2.55 million barrels to just over 457 million barrels, compared to the five-year average, inventories are still lower and largely unchanged. At the same time, the weekly crude oil picture improved in terms of the trade balance, even though June’s demand indicators were unimpressive.

For the month of May, we saw Brent crude oil prices averaging around $82 per barrel, down $8 per barrel from the previous month. During the first week of June, we also saw prices lose further following OPEC+’s announcement that oil production cuts would remain in effect until the third quarter of this year, with the EIA stating that she expected a drop in OPEC+ production for the rest of the year. year, estimating that oil prices will average around $85 per barrel for the second half of this year. The EIA expects “more oil to be removed from global inventories in 2H24 than last month.”

“We now expect that OPEC+ will not begin easing voluntary cuts until 4Q24, in line with the group’s recent announcement. Although crude oil prices initially fell following the OPEC+ announcement, we expect the extension of all voluntary cuts through 3Q24 to result in continued global oil inventories. fell through 1Q25 and put upward pressure on oil prices during this period,” the EIA said on June 11.

This week’s EIA data will be released on Wednesday and was preceded today by data from the American Petroleum Institute (API), which showed that US crude inventories increased by 914,000 barrels for the weekend. ended on June 21, while gasoline stocks increased by 3.843 million barrels. .

At the same time, investors remain uncertain about whether and when the Federal Reserve will cut rates again this year, although the most recent indications are that the market could potentially expect a rate cut in September this year, followed by two more. more in 2025. Federal Reserve Governor Lisa Cook reiterated Tuesday that a rate cut is likely, assuming the economy performs as expected.

ET Tuesday, Brent crude was trading just two cents shy of $85, while West Texas Intermediate (WTI), the U.S. crude oil benchmark, was trading at $80.83 , with lackluster U.S. consumer confidence and a slower decline than crude oil. the expected start of summer stimulates demand for gasoline.

By Alex Kimani for Oilprice.com

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