RigData Insights

Storage levels must decline before drilling improves

  • Monday, May 23, 2016
  • Posted By

Rig with lighting  

 

Drilling contractors and operators alike were mixed on when the oversupply of crude oil would dissipate, but all agreed that less product being stored in tanks and rail cars would be key to helping bolster wellhead pricing and corresponding drilling.

“The key to problems in wellhead pricing is oversupply, but I have no idea when the excess supply will dissipate,” said a multi-regional driller.

Another driller said he believes that the oversupply of product in storage could actually begin to diminish soon. “We are looking for this to happen sooner than expected. An acceleration of depletion from wells will take off pretty quickly,” he said.

However, a Gulf Coast driller believes that while the US is still importing oil, there would be no way to predict when the oversupply will diminish and drilling would revive.

Operators generally echoed driller sentiments about storage. Some said production has declined from a lack of drilling activity, others do not believe storage gures can be measured accurately, and some said pricing is often an “emotional event” too often tied to the release of weekly storage gures.

 

“The oil price will continue to strengthen, but it will take a bit longer for the oversupply to work off, and that makes people nervous,” a large independent operator said. 

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