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Oil and Gas Update - July 2016

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July 1, 2016

U.S. inventories of crude oil continued to slide in June, mirroring the slow decline in production as a result of the 2-year pullback in drilling. Most of the reduction in inventory was attributed to an increase in gasoline production due to fuel needs for the traditional summer vacation driving.

Expectations that the drop in inventory would continue drove the price of oil above $50 a barrel for a while in June before Great Britain's vote to leave the European Union put jitters back into the market.

Still, inventories remain near record levels for this time of year, the U.S. Energy Information Administration reported. The agency said that as of the week ending June 17, U.S. crude stockpiles fell by almost one million barrels from the previous week to 530.6 million barrels.

The inventory news, along with the doubling of oil prices since bottoming out near $26 a barrel in February, revived optimism among some companies. After rising for three consecutive weeks above its low of 404, the number of rigs at work in U.S. oil fields fell back in late June to 421, according to the weekly report from Baker Hughes. 

Officials with the Federal Reserve Bank in Dallas reported that their survey of operators determined that the average break-even price is $53 a barrel for Eagle Ford Shale drillers and $51 a barrel for producers in the Permian Basin. That's cheaper than the price in most U.S. oilfields but not enough to entice a lot of producers to put rigs back to work, analysts said.

After rising for three consecutive weeks above its 17-year low of 404, the number of rigs at work in U.S. oil fields fell back in late June to 421.  Texas hosted 194 of those rigs, 46 percent of the U.S. total.

U.S. crude production by the end of June had dropped to 8.68 million barrels a day, down 100,000 barrels from a month earlier.  The Railroad Commission of Texas said preliminary statewide oil production in April fell to 2.49 million barrels a day, compared to 2.51 million barrels a day in the previous month and 2.32 million barrels a day in April 2015.

The railroad commission reported that it issued 606 new drilling permits in April, down from 683 in March and 916 in May 2015.

In Senate District 19, Reeves County in April was number 8 among Texas counties for oil production and number 6 for condensate production. Dimmit County continued its hold on the number 1 spot for condensate production and ranked number 4 for natural gas production.