Oil Prices Soft as Inventories Rise

More negative news for the crude oil exploration-and-production industry in the United States this week as prices dipped again, inventories rose again, and the drilling rig count declined again.

Oil prices on the New York Mercantile Exchange (NYMEX) closed at $54.91 on Wednesday down $8.76 (14 percent) from a year ago.

Oil stocks rose 5 million barrels during the week to 438 million barrels, which is 12 million barrels more than one year ago.

The drilling rig count, a key barometer of industry activity, dropped to 851 for the week, which is a 20 percent decline from a year ago of 1,068.

Soft prices can be attributed to an oversupply of crude oil in the U.S. and internationally.

Bloomberg reported that Saudi Arabia, the world’s largest exporter, is ready to make deeper cuts in oil output than it agreed to with other global producers.

Saudi Arabia is leading the Organization of Petroleum Exporting Countries (OPEC) and other top producers like Russia into a collective production cut extending through the end of March. OPEC and its allies are due to meet in December to discuss whether steeper cuts to oil supply will be needed to shore up prices amid a surplus and signs of weaker demand.

U.S. benchmark futures have been under pressure for the past six months as the protracted U.S.-China trade war imperiled worldwide energy demand. President Trump has indicated that negotiations are progressing, raising expectations that the world’s largest economies may sign a deal as soon as next month.

U.S. crude oil production has set records in 2019 rising to more than 12 million barrels per day (b/d), which more than double production levels just 10 years ago.

Texas has led the industry with big increases in the Permian Basin of West Texas and Eastern New Mexico and the Eagle Ford Shale in South Texas.

U.S. oil production continues to increase finding new markets around the world.

The Energy Information Administration (EIA) reports exports of crude oil increased to an average of 2.9 million b/d, an increase of 966,000 b/d from the first half of 2018. Also in the first half of 2019, U.S. crude oil exports set a new record-high monthly average of 3.2 million b/d in June.

The number of U.S. crude oil export destinations also continued to grow, and now exceeds the number of U.S. crude oil import sources, EIA said.

Asia was the largest regional destination for U.S. crude oil exports—1.3 million b/d in the first half of 2019—followed by destinations in Western Europe, which received 824,000 b/d. U.S. crude oil exports to North America, which almost exclusively go to Canada (the largest single destination for U.S. crude oil exports globally) did not change much from the first half of 2018 to the first half of 2019, averaging 458,000 b/d.

Alex Mills is the former President of the Texas Alliance of Energy Producers.