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Fracking Fall Out is in Season!

Last year, when the leaves began to change and Fall moved in, many companies began winding down and finishing out their 2014 wells before regrouping and finalizing plans for 2015. This year, we are seeing things wind down a little sooner, as companies finish up their agenda in what has been a tough year. However, if you listen to Wall Street, the sky is falling and this seasonal slow down is being viewed as low oil price fall out. Some of it may be but it is also a seasonal trend.

Short term moves in rig count, oil production, supply demands, refinery conversions and news from OPEC do not necessary make for an accurate picture. Fall refinery conversions cause a build up in supplies, companies in the North start to wind down due to bad weather moving in, and frac sand prices rise due to logistics price increases during the harvest season.

For the record, grain moved by rail cars is significantly up in 2015 over 2014 or 2013. Check out this chart: https://www.aar.org/Pages/Freight-Rail-Traffic-Data.aspx.

As always, there are a few companies in full throttle and clearly taking advantage of low prices on everything from sand to drilling chemicals. Yes, the market is down significantly, but the realities of an extended downturn in oil and gas set in some time ago. Companies that can produce oil at much lower margins are in that window where there just aren’t many options other than generating production rather than waiting for a market rebound.

March and April of 2016 will give us a true indication of how much contraction we have as a sector. As companies ramp up in the Spring, they will find lower priced commodities, chemicals, equipment rentals, trucking services and labor. New production activity will also should include more movement to leases with the lowest production costs. So, we expect to see more activity in some areas where there is lower cost production.

In the meantime, OPEC is feeling the pain too. World Oil magazine – October 2015 just did an article on the Middle East top producers. I highly recommend it. They also provide good data in their INDUSTRY AT A GLANCE provided by craig.fleming@worldoil.com. Here is a few nuggets from the review:

World Oil & NGL Production:
Total Supply: (Million Barrels/Day)
July 2015: 94.15
August 2015: 93.50

Of those numbers specific countries of interest were listed as follows:
Saudi Arabia: July 2015 – 10.38 August 2015 – 10.28
Iran: July 2015 – 2.87 August 2015 – 2.87
Iraq: July 2015 – 4.22 August 2015 – 4.13
*US July 2015 – 12.66 August 2015 – 12.66
*Canada July 2015 – 4.31 August 2015 – 4.22
Russia July 2015 – 11.00 August 2015 – 11.02

* The totals for these countries comprise of crude oil, condensates, NGLS and oil from non-conventional sources.

There is also a chart that shows U.S. Oil Production by state and even breaks out Texas by district. The total production for the U.S. shows July 2015 at 8,775k bpd and August 2015 at 8874k bpd. It is also interesting to note the international rig count provided in this article:

International Rotary Rig Count:
July 2015 August 2015
Land 1,061 1,048
Off Shore 258 281

This is a good resource for tracking oil rig count by state and totals by country to get a good sense of the market activity overall.

One other note of interest in the world of more accurate data, the Association of American Railroads (www.Aar.org) shows petroleum and petroleum products, down 16.6 percent from last year at 13,621 carloads. Although this number is clearly down from 2014, it recently showed an upward movement. Visit https://www.aar.org/data-center/rail-traffic-data to take a look at the trend in petroleum and non-metallic minerals, which includes frac sand.

Lower demand is definitely holding prices down. The American Petroleum Institute just Tuesday reported an increase in U.S. crude stocks of 7.1 million barrels to 473 million barrels in the week of Oct. 16. Projections for an increase were in the 3.9 million barrel range.

I am out of the office this week hosting a conference, so activity on the trading board updates is limited. If you have an offering to present, email is best for approvals. Also, one of our field reps is compiling a listing for “On the Ground” supplies in major plays to provide our buyers. If you have product on the ground in Texas, New Mexico, or the Bakken that you would like included in our list going out to buyers, please email us. If you are a buyer and would like to receive the list, email us, as well.

Have a great week!

Jen
407-810-3102

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