The US could not resist the scenario of shutting down an expensive rig when oil prices still plummeted.
On April 27, world oil prices fell again, especially in the US market, due to fears of oversupply and the gloomy global economy.
|Low oil prices are pushing the US to close the scenario of drilling rig closures.|
Oilprice.com said, US oil prices led the decline in futures contracts with a reduction of more than 4 USD / barrel due to concerns that inventories in Cushing City, Oklahoma could soon reach maximum capacity. multi.
US WTI crude oil dropped about 6% or 77 US cents to US $ 12.01 / barrel after falling 25% in the previous session.
June Brent crude oil dropped about 3.5% in early trading, currently down 1.4% or 27 US cents to $ 19.72 / barrel after falling 6.8% in the previous session.
Despite experiencing a period of stability from the middle of last week, but US oil prices recorded a record weekly decline of 32.3% in contracts delivered in June. Brent oil delivered in June fell 23.6 % of the week ended April 24.
The reason for the continuous decline in oil prices is the continuous decline in world oil demand as well as concerns about the lack of oil reserves in the US.
The movement of oil price continued to plunge, showing no sign of stopping, foreshadowing the scenario of early rigs to shut down in series.
OPEC and partners outside the organization including Russia are the first to cut production in the market while the US claims to cut production according to market signals. The OPEC + cuts will first take action, but the fact is that the US shale industry is at the forefront of output cuts.
Last week, the number of active drilling rigs in the US fell to the lowest level in the past four years. Before the outbreak of COVID-19, American oil companies maintained 650 rigs. But by 24/4, the number of operating rigs was only 378, more than 40% was forced to stop working.
Trafigura, one of the largest US exporters of crude oil from the Gulf of Mexico, said that production in Texas, New Mexico and North Dakota would fall faster than expected, when companies were forced to face the price situation. Negative oil lasted for days in commodity trading sessions last week.
Before the April 20 price collapse, market operators agreed that a production cut of 1.5 million bpd would fall in December.
But that deadline is now shortened to June. According to oil analyst Roger Diwan at consulting firm IHS Markit, the severity of price pressure is the cause of the immediate reduction of activity and subsequent closure.
The oil price shock is most evident in the manufacturing sector: Crude oil producers such as South Texas Sour and Eastern Kansas Common were forced to pay US $ 50 per barrel to release the exploited output.
ConocoPhillips and shale oil firm Continental Resources announced plans to close operations.
Lawmakers in Oklahama and Mexico voted in a decision to allow oil drilling companies to build wells without having to reimburse hiring contracts.
In North Dakota, shale oil companies had to close more than 6,000 wells, reducing production by 405,000 barrels per day, equivalent to 30% of the state’s production.
Observers said the closure would continue to spread to refining areas.
Last week, Marathon Petroleum, one of the nation’s largest oil refineries, announced a shutdown at a complex near San Francisco. Royal Dutch Shell has also shut down several oil refining centers in the US located in Alabama and Louisiana. And throughout Asia and Europe, many refineries currently operate only moderately, at 50% of designed capacity. Refined oil production in the US fell to 12.45 bpd in the week ending April 17, the lowest level in the past 30 years, except for the storm closures.
Decreasing production also occurs in other countries. Russia is an example.
Mikhail Krutikhin, an expert at the Moscow-based consulting firm RusEnergy, monitors Russia’s oil and gas industry and post-Soviet space states. causing long-term negative impacts on the Russian economy.
According to him, Russia currently has about 180,000 active oil wells. To cut production by 23%, Russia was forced to close 14,000 wells. On average, a well produces 9.5 million tons of oil a day. Compared with Saudi Arabia, a well in this country can produce 1,000-2,000 tons. This means that the number of oil wells that Russia has to close 16 times that of Saudi Arabia.
To close this window, companies will have to disconnect the power supply line, stop pumping water. It is not too technically complex, but it will be difficult to restore the production capacity of these wells later. If the number of oil wells is immobile for two months, it will be necessary to clean and dislodge the compound between paraffin and searin. In the northern regions where many Russian oil production facilities are concentrated, oil wells still occur in a state of solidification. It is a very expensive process.
Closing the rigs is therefore a terrible prospect. Mining companies initially stopped mining new mines, but the world situation was unlikely to improve for oil prices, forcing them to cut production of several rigs before closing. An oil rig.
Consulting and traders said that more refineries would have to close, especially in the US, the country imposed the blockade later than in Europe. According to Steve Sawyer, director of the petrochemical division at Facts Global Energy, a consultancy, refineries will have to reduce capacity by 25% in May.