Rigzone: Building On Stability, 2012's Offshore Outlook Appears Bright

The total number of offshore rigs under contract has shown a high degree of stability over the past eight months. Contracted floaters, rigs capable of deepwater drilling, have not budged relative to the fourth quarter's average. Contracted jackups have fallen by 5 rigs versus the fourth quarter. But both jackups and floaters are in better shape than the third quarter. Looking ahead, oil field service companies like Schlumberger and Transocean recently made comments that hinted of further strengthening in the offshore markets both globally and in the Gulf of Mexico.

Schlumberger's 4Q11 Conference Call – "We anticipate a continued recovery in the deepwater Gulf of Mexico with strong demand for high-value technologies. In the international markets, we expect 2012 rig count to be up around 10 percent versus 2011, driven by strong offshore activity in West Africa, the North Sea and Brazil…"

Transocean's 4Q11 Conference Call – "While the global economic uncertainty still lingers, our major customers' capital spending budget for 2012 pertains a year-on-year increase averaging around 12 percent to 15 percent."

Worldwide utilization for the mobile offshore drilling fleet has averaged 72.3 percent over the last 12 months. Most recently, utilization was 72.5 percent spanning the entire global fleet. Utilization has been holding steady between a range of 71 to 73 percent since setting a recent low of 69 percent back in February 2011.

Looking at absolute numbers, the count for offshore rigs is up 35 rigs (+11 drillships, +16 jackups, and +8 semisubs) to 560 rigs contracted globally over the past 12 months. On a net basis, the entire fleet of marketed rigs has grown to 772 rigs throughout the globe, up 37 (+17 drillships, +6 jackups, +14 semisubs) rigs versus one year ago.

Currently, there are 60 drillships working (from a global fleet of 78), implying 77 percent utilization. Semisubs number 163 contracted from a total of 213 rigs, also approximately 77 percent utilization. Globally, the jackup segment, the largest of the three groups, has had a dampening effect on the overall utilization with 337 under contract out of a total fleet of 481 rigs or utilization of 70 percent.

We continue to see a mending and recovery for offshore rig usage, in the Gulf of Mexico (GOM), nearly two years after the Macondo oil spill. However, we would note that there are still 13 fewer rigs working in the region relative to levels prior to the incident. Currently, 89 (10 drillships, 59 jackups, 20 semisubs) rigs are under contract in the region with a combined utilization of 62 percent. Rigs situated in U.S. waters of the GOM comprise 71 percent (100 percent of drillships, 63 percent of jackups, and 80 percent of semisubs) of the mix in the region. The rest of the rigs (i.e. 26 rigs) are in Mexico's territorial waters.

Posted courtesy of Rigzone.Com

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Crude Oil Falls as China’s Factory Activity Shrinks

Crude oil fell to a one week low [We are now following the May crude oil contract] on Thursday after manufacturing in the euro area and China contracted this month, signaling that fuel consumption may decline. Initial indications out of China indicated that industrial activity decreased.

Crude's decline accelerated as equities retreated and the dollar climbed against the euro. The low range close sets the stage for a steady to lower opening on Friday.

Stochastics and the RSI are turning neutral signaling that sideways to lower prices are possible near term. Closes below last Thursday's crossing at 104.29 are needed to confirm that a short term top has been posted. If May renews this winter's rally, the 2011 high crossing at 113.75 is the next upside target.

First resistance is this month's high crossing at 110.95. Second resistance is the 2011 high crossing at 113.75. First support is last Thursday's low crossing at 104.29. Second support is the reaction low crossing at 98.38.

We continue to like the long term chart formation, which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April, May period. With a Score of -70, this commodity is in an emerging trend.

 With our monthly Trade Triangle still in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

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Crude Oil Closes Lower Despite a Surprising Decline in Supplies

Since reaching a high of just over $110 a barrel, this market has fallen back and moved sideways. We view the current action as positive longer term to drive crude oil prices up to the $120-$125 levels. A close this week over the $108.20 level should be viewed as extremely positive for this commodity.

We continue to like the chart formation which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April May period. With a Score of -55, this commodity is in a trading range. With our monthly Trade Triangle in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

April crude oil closed lower on Wednesday due to profit taking despite a surprising decline in domestic supplies. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI have turned bullish despite today's setback signaling that sideways to higher prices are possible near term.

If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target. Closes below last Thursday's crossing at 103.78 are needed to confirm that a short term top has been posted. First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is last Thursday's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

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Refinery Utilization Rates React to Economics in 2011

The divergence of West Texas Intermediate (WTI) and Brent crude oil prices in 2011 affected refinery utilization in the United States, particularly in the East Coast (PADD 1) and Midwest (PADD 2) regions. Historically, refineries in these districts operated at 80-90% of their capacity. Changes in refining economics last year contributed to real contrasts in refinery utilization in some of the PADDs (see Overview chart).

Source: U.S. Energy Information Administration, Refinery Utilization and Capacity.

 Some key findings by PADD include:

• PADD 1. East Coast refining typically relies on imports of crude oil based on the Brent crude price, which, on average, increased to a $16-per-barrel premium over WTI spot prices in 2011. As a result, two East Coast refineries idled capacity due to poor economics, while another is considering selling or shutting down. PADD 1 utilization averaged only 68% of operable capacity in 2011, which includes the idle capacity of closed refineries. This utilization rate reflects both the drop in East Coast refining capacity and lower crude oil inputs.
• PADD 2. Midwest refineries benefitted from supplies of less expensive crude oil coming from Canada and increased production in the Bakken formation. Thus, PADD 2 refineries averaged about 91% utilization in 2011, even with increased refining capacity. As a result, PADD 2 average crude oil inputs of nearly 3.4 million barrels per day were at the highest level since 2000.
• PADD 3. Gulf Coast (PADD 3) continued capacity expansions as refineries upgraded infrastructure to maximize yields. Growing oil production in Texas and the Midwest contributed to increased inputs. The Gulf Coast refineries were able to use different types of crude oil to maximize production. Refineries in this region used cheaper sources of crude compared to the rest of the country.
• PADDs 4 and 5. Refinery closures, outages, and a lack of access to less expensive crude oil reduced inputs in 2011 to refineries in PADDs 4 and 5 and helped drive down utilization rates.

 

Crude Oil Closes Above $108....Is This a Positive Sign?

Crude oil [April contract] closed higher on Monday while extending the trading range of the past two weeks. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are turning neutral to bullish signaling that sideways to higher prices are possible near term. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target.

Closes below last Thursday's crossing at 103.78 are needed to confirm that a short term top has been posted. First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is last Thursday's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

The close in crude oil today over the $108.20 level should be viewed as extremely positive for this commodity. We believe the low that was seen last Thursday is a cyclic low similar to what occurred in early February and the middle of December. If this is indeed the case, we expect this market to start moving higher this week.

We continue to like the chart formation which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April, May period. With a Score of +75, we believe this market is regrouping to move higher later in the month. With two of our Trade Triangles in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Today’s Stock Market Club Trading Triangles

A Bullishness Vibe in the Air as Traders Move From Bonds into Stocks

This week may provide some trading opportunities for us if all goes well now that most traders and investors are all giddy about stocks again. Last week we saw money move out of bonds and into stocks and the bullishness vibe in the air reminds of many market peaks just before a 5%+ correction in stocks.

Depending how the SP500 unfolds we may be going long or short equities, long precious metals, long bonds, and our VXX trade may spike in our favor.

Bonds: After last week’s strong move down in bonds as the HERD moved out of bonds and into stocks it may be providing us an opportunity to catch a dip or bounce in the price of bonds. If the stock market sees strong selling this week money will run back into bonds.

Looking at precious metals it looks as though gold, gold miners and silver may still head lower this week. The charts are still bearish and pointing to another multi percent drop in value. Gold will look bullish around $1600, Gold miners (GDX) around $48, and Silver around $30 but we need to see one more wave of strong distribution selling for that to take place.

Crude oil has recovered nicely from its 5 wave correction which shook us out of the trade for a profit. I still like the chart for higher prices but with it trading at resistance and a high possibility of sellers stepping back in at this level I am not getting involved here.

The SP500 made a new high last night but has run into sellers early this morning taking prices straight back down. The chart in pre-market looks as though we will see lower stock prices later today and with any luck the fear index (VIX) will continue to rise in our favor.

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Chris Vermeulen

Crude Oil Weekly Technical Outlook For Sunday March 18th

From the staff at Oil N Gold.......

Crude oil dripped to 103.78 last week as consolidation from 110.55 extended but quickly recovered. Such consolidation might have completed already. Initial bias is mildly on the upside this week for retest of 110.55. Break will confirm resumption of recent rally and should target 114.83 key resistance next. On the downside, though, below 103.78 will extend the correction to 61.8% retracement of 95.44 to 110.55 at 101.21.

In the bigger picture, the medium term up trend from 33.2 shouldn't be completed yet. Rise from 74.95 is indeed tentatively treated as resumption of such rally. Sustained break of 114.83 will target 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40. On the downside, though, break of 95.44 support will indicate that correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before completion.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Did Crude Oil Make a Cyclic Low on Thursday?

We believe the low that was seen on Thursday, which has good support at the $104 level, is a cyclic low similar to what occurred in early February and the middle of December. If that is indeed the case, we would expect this market to start moving higher next week. We continue to like the chart formation, which we believe will eventually push this market higher until early April.

We are looking for crude oil to make its highs probably somewhere in the April, May period. With a Score of -60, we believe this market is regrouping to move higher later in the month. With our monthly Trade Triangle in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Crude oil [April contract] closed higher on Friday as it extends the trading range of the past two weeks. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI remain neutral to bearish hinting that a short term top might be in or is near.

Closes below last Wednesday's crossing at 104.35 are needed to confirm that a short term top has been posted. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target.

First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is Thursday's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

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U.S. Natural Gas Net Imports at Lowest Levels Since 1992

The preliminary estimate of U.S. natural gas average daily net imports—imports minus exports—was just over 5 billion cubic feet per day (Bcfd) in 2011, which was the lowest level since 1992 (see chart above). Net import declines are due to both lower imports and higher exports; U.S. net imports of natural gas peaked in August 2007 at 10 Bcfd, and have fallen markedly since.



Imports
The United States imports natural gas via pipelines from Canada and Mexico, and from tanker deliveries to liquefied natural gas (LNG) terminals. Some key points include:

• The vast majority of U.S. natural gas imports arrive via pipeline from Canada (see chart below). Significant increases in U.S. natural gas production have led to decreased U.S. demand for Canadian natural gas. Imports from Canada for 2011 were significantly below the previous five-year range, and have been lower for much of 2012 so far (some of this decline, however, can be attributed to warmer-than-usual weather across much of the United States).
• LNG is the other main source of imported natural gas, however average daily deliveries from U.S. LNG terminals from January 1, 2012 through March 15, 2012 averaged 0.6 Bcf/d, down about 44% from a comparable period in 2011. Higher natural gas prices in competing markets abroad are attracting "spot" LNG cargoes that can be delivered under flexible pricing terms. LNG imports through U.S. terminals peaked in 2007 at over 2.1 Bcfd.
• U.S. natural gas imports from Mexico are negligible, totaling just 2.7 Bcf, or about 7.3 million cubic feet per day in 2011. Imports from Mexico enter primarily through southern Texas and southeastern California.

Exports
U.S. exports of natural gas are up over the past decade. Some key factors underpinning the growth in exports are:

• Domestic natural gas production is growing, primarily from shale gas formations. Some of this production is being shipped on pipelines into Canada and Mexico (see chart below).
• Much of the growth in natural gas exports to Canada is due to increased deliveries on U.S. pipelines to natural gas storage facilities in Ontario.
• Exports to Mexico reached a high in 2011, averaging almost 1.4 Bcfd for the year, exceeding the previous high of 1.1 Bcfd in 2004.

Source: U.S. Energy Information Administration, Natural Gas Monthly, Table 4 - U.S. Natural Gas Imports and Exports.

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Rumor of Strategic Oil Reserves Being Released Push Market Lower

As we have stated before the 104 area is an area of support for the April contract. Today’s non announcement rumor of strategic oil reserves being released by Britain and the US push this market down to the 104 support level. We still believe that this market is going to move higher.

We continue to like the chart formation which we believe will eventually push this market higher until early April. We are looking for crude oil to make its highs probably somewhere in the April May period.

With a trading score of -70 we believe this market is regrouping to move higher later in the month. With our monthly trade triangles in a positive mode, we expect to see further gains in crude oil. Long term traders should be long this market with appropriate money management stops.

Crude oil [April contract] closed lower on Thursday as it extends the trading range of the past two weeks. The mid range close sets the stage for a steady opening on Friday. Stochastics and the RSI remain bearish hinting that a short term top might be in or is near.

Closes below last Wednesday's crossing at 104.35 are needed to confirm that a short term top has been posted. If April renews this winter's rally, the 2011 high crossing at 114.09 is the next upside target.

First resistance is this month's high crossing at 110.55. Second resistance is the 2011 high crossing at 114.09. First support is today's low crossing at 103.78. Second support is the reaction low crossing at 97.73.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500