An Interesting Crude Supply Dichotomy Is Emerging

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)

In this week’s preview of what to watch in oil and gas markets, Rigzone’s regular energy prognosticators take a look at a crude supply dichotomy, jet fuel prices, travel numbers and more. Read on below to find out the specifics.

Rigzone: What developments/trends will you be on the lookout for this week?

Jon Donnel, Managing Director, B. Riley Advisory Services: An interesting dichotomy is emerging regarding expectations for future crude supplies. The most recent forecast from the EIA indicates U.S. crude production will reach 12.6 million barrels per day by the end of 2022 and further increase to 13.25 million barrels per day by year-end 2023. The former represents about a six percent increase from current levels and is about nine percent above year-end 2021 figures, while the latter would be above the highest levels ever recorded (around 13 million barrels per day pre-Covid). Higher commodity prices and worldwide supply issues provide support for these estimates, but other facts on the ground suggest this growth could be difficult to come by. Since the beginning of the year, oil-directed rig counts are up 14 percent and drilled but uncompleted wells (DUCs) are down by almost 10 percent (and by more than half since the beginning of the pandemic), but production has only increased by about two percent. Commentary from service companies this quarter has consistently indicated that premium equipment is essentially sold out for the rest of the year, capital constraints and supply chain issues make new fleet additions and most upgrades of older, underutilized equipment very difficult, if not impossible, and incremental labor is not easily available were additional rigs or frac spreads to materialize. We will learn more about E&P plans over the coming weeks as they report earnings, but unless they indicate a willingness to increase spending compared to current budgets, production growth will remain challenged.

Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: Will be watching jet fuel prices and travel numbers. TSA check point travel numbers are on the rise and expected to increase with mask mandates ended for domestic travel. TSA travel numbers so far in April 2022 averaged 2.1 million passengers compared to 2.3 million in 2019. Meanwhile, airline prices are escalating amid expensive jet fuel prices. U.S. Gulf Coast Jet Fuel spot price reached $4.227 per gallon, the highest price since 2008. How high can airfare prices go before demand destruction sets in?

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