COVID-19 Pandemic Causes Oil Prices To Plummet

COVID-19 Pandemic Causes Oil Prices To Plummet

The COVID-19 pandemic has caused the largest horizontal rig count collapse ever recorded in the U.S., according to a Rystad Energy analysis of Baker Hughes data. The total horizontal oil rig count fell below 270 rigs last week, a 57% decline from the peak of 624 rigs seen in mid-March 2020. Horizontal gas drilling was down to 70 rigs last week, which is 54% below the previous peak seen in June 2019.The magnitude of the decline in horizontal oil drilling makes this downturn even more unique, compared to the previous downturn of 2015-2016, where declines all the way from the peak to the trough reached around 53% to 54%.

Although the bottom has not yet been reached, it is believed that the peak pace of the decline, in both absolute and percentage terms, has likely passed. After several weeks of observing a decrease of 50-55 rigs per week, the oil rig count was down by only 32 rigs last week. On a two-week basis, a 23.4% decline was recorded last week, moderating from the peak two-week decline level of 25.6% seen the week prior.
“The oil price crisis and the impact of COVID-19 has resulted in the most dramatic collapse of the U.S. land rig market in history. There are two key trends around basin mix; the share of Permian increased in terms of total horizontal oil drilling from around 62% to about 73%, while the share of gas in total horizontal drilling increased from 12% to 21%. We anticipate that both of these shares will continue to climb in the next few weeks,” says Artem Abramov, Rystad Energy’s Head of Shale Research.

So how does all this affect propane production? What it has done is lower the production way down and has allowed the refiners to export excess propane overseas instead of selling it to us at a lower rate. Right now, summer spot prices are at or higher than this winter. Low oil prices are good in the short term but bad for the long term.We need the U.S. oil production to ramp up over the next few months or we will have low supply of propane and we will be at the mercy of the refiners. I hope all of you are staying healthy and thank you for your business.

Cordially,
John Buller and Sons

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