Environment and Energy

SMU Energy Market Analysis through September

September 10, 2021

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The Energy Information Administration’s August Short-Term Energy Outlook remains subject to heightened levels of uncertainty related to the ongoing economic recovery from the COVID-19 pandemic. That big caveat aside, the increase in economic activity continues to contribute to rising energy use. EIA anticipates a balanced global oil market for the remainder of 2021. Crude oil and natural gas prices are forecast to remain steady through the remainder of the year. The EIA reported that over 90% of crude oil production in the Gulf of Mexico went offline in late-August due to Hurricane Ida, resulting in a 0.3 million barrel per day decline in production down to 1.5 million barrels per day. Crude oil production is expected to gradually come back online during September. The EIA reports that U.S. regular gasoline prices averaged $3.16 per gallon in August, the highest monthly average price since October 2014. Increases reflect rising wholesale margins among relatively low inventories.

Spot Prices

The spot market price for West Texas Intermediate (WTI) is now at $69.15 per barrel as of Sept. 3. Recall that the July 2, 2021, weekly average of $74.07 was is the highest weekly oil spot price average since October 2018, a 33-month high. Natural gas prices at the Henry Hub in Oklahoma continue to rise, now at $4.49 per MMBTU (million British Thermal Units) as of Sept. 3. Excluding the February 2021 surge (when winter storms impacted much of the nation and the scarcity of natural gas and rising demand drove spot prices through the roof), this is the highest weekly natural gas spot price average since Dec. 7, 2018, when it was also $4.49 per MMBTU. Figure 1 shows the weekly average spot prices for each product. The EIA expects crude oil spot prices to average $71 per barrel during the fourth quarter 2021 and natural gas spot prices to average $4.00/MMBtu.

Rig Counts

The number of active U.S. oil and gas drill rigs continues to recover since the mid-2020 low. The count was 503 active drill rigs as of the end of last week. That total is comprised of 401 oil rigs and 101 gas rigs, according to the latest data from Baker Hughes (Figure 2). While up over recent months, active drill rigs are still down 37% from the 793 count in March 2020, just prior to the coronavirus shutdowns. The table below compares the current U.S., Canadian and international rig counts to historical levels.

U.S. oil and gas production are heavily concentrated in Texas, Oklahoma, North Dakota and New Mexico, which have seen declines of 35-65% since March of last year. The most active state, Texas, now has 235 rigs in operation, the highest level seen since April 17, 2020. Recall that in just five months, Texas rigs had plummeted from 407 in March 2020 to 97 rigs in August 2020 (Figure 3).

Stock Levels

U.S. total crude oil stocks in 2020 surged from mid-March through July, but they have steadily declined since then. The latest level is down yet again compared to the previous Energy Update; 1.045 billion barrels as of Sept. 3, down from 1.148 billion barrels at the same time last year (Figure 4).

Trends in energy prices and rig counts are a predictor of demand for oil country tubular goods (OCTG), line pipe and other steel products.

By Brett Linton, Brett@SteelMarketUpdate.com

Brett Linton

Brett Linton is a senior analyst for Steel Market Update, where he began his career. Linton has been in the steel industry since 2010. He has held roles as a category manager and strategic insights director at Reibus before returning to SMU in 2024. He is a graduate of The University of North Georgia with a degree in Finance and Accounting. Brett can be reached at brett@steelmarketupdate.com or 724-314-0179.