This week at the pump
The national average crept up 2 cents from last week, with some states seeing as high as an 8 cent increase. This is continued upward adjustment following a three-week rally in crude oil pricing along with increased traffic on the road. Road traffic is up 7% from last week, though still 25% lower than this time last year.
Expect small week-to-week increases at the pump look to continue for the next few weeks.
Crude prices surge as OPEC+ looks to extend production cuts; US producers bring wells online in response
WTI Crude (West Texas Intermediate, a high quality West Texas blend of oil the US benchmark pricing. The UK equivalent is Brent) is up nearly $5 this week to nearly $37 at Tuesday’s close, a 14% increase. This surge is predominately related to signs Russia and Saudi Arabia will extend production cuts until at least July, if not longer. Talks are scheduled to happen this Thursday, so stay tuned.
The increase in oil prices are prompting some US producers to begin returning wells to production. North Dakota, home to the extremely productive Bakken play in the Williston Basin, is showing early reports of 7% increased production (about 700 wells) versus the week before. North Dakota reports production sooner than other big producing states like Texas and Oklahoma, which makes it a leading indicator. Although the increase in production from North Dakota isn’t enough to significantly impact production cuts, it’s been described as the “canary in the coal mine.” If North Dakota is seeing an increase, you can bet Oklahoma and Texas are seeing them too which would be a much bigger impact to world oil production.
This is in line with reports of plans to begin opening up wells from major producers like EOG Resources (active in Texas, New Mexico, Oklahoma, Colorado, and more) and Parsley Energy (Texas Permian pure-play). The market is watching to see if US producers bring oil online too fast, or if they’re able to thread the needle in the gap of supply and demand left open by OPEC+ production cuts.
Technical experts struggle to agree on which wells to shut in
As a great follow-up to our article from last week on what it means to shut in a well, this month’s Journal of Petroleum Technology highlighted questions producers are facing regarding which wells to shut in.
Key takeaways include:
Generally good wells to shut in:
“Good producing” wells (poor producers may not come back online at all. “Good wells are good wells”)
Mid-life rod pump wells (low cost and low risk)
Wolfcamp Shale wells (higher pressure; tested by Pioneer Natural Resources)
Dry gas wells (most likely to come back online at higher rates)
- Generally poor wells to shut in:
- High-water-cut wells (corrosion issues, hard to restart, BUT can save disposal costs)
New wells brought online quickly (shutting in could cause too much stress cycling on proppant)
Wells with electronic submersible pumps (ESPs) (“very finicky” and likely to get damaged)
- Up for debate:
Newest flowing wells (perceived risk to reservoir is high, but also likely to return to a good rate)
End-of-life/marginal/”stripper” wells (producing less than 6 bbls/day are the obvious wells to target to shut-in, but cumulatively don’t add up to much curtailment and could mean the end of the well)
Energy industry braces for more layoffs
Chevron, one of the largest US oil & gas companies, will be laying off an estimated 15% of its workforce this year in a focus on streamlining operations to match activity, totaling nearly 6000 workers. This represents nearly 3% of US oil & gas workers and would be a huge blow.
Energy Transfer, a pipeline operator, is also estimated to lay off nearly 750 workers this year (a 6% reduction in their workforce).
