Oil Services, Drilling & Equipment
Crude Supply Expectations &
US Nat Gas Production Down
IEA has shifted its medium-term supply outlook
from prior “optimistic” expectations published
Dec-08. The agency now calls for non-OPEC
production to fall by 400 kb/d by 2014, vs. prior
expectations of a 1.5 mb/d increase, while OPEC
capacity growth has been reduced to 1.7 mb/d vs. 2.5
mb/d. Non-OPEC (ex FSU) production peaked in 2002
and Russia peaked 2008 despite record spending. The
revised IEA expectations places the agency much closer
to our “peak oil” supply observations, thereby leaving a
global sustainable economic recovery at risk of running
out of “energy” within a couple of years of gaining
traction. In the meantime, we remain overweight the Oil
Service and Drilling sector although stock volatility will
persist while we define the global GDP trough and the
shape of a potential recovery. The recent sharp
correction makes NOV, WFT, SLB and HAL screen well.
US natural gas production declines for the second
time this year according to latest EIA-914 data.
Despite bearish expectations, we saw production
decline by 0.2% m/m. Given the 6-month lag between
rig count and production, we believe that production has
truly started to decline as of late, which should show up
in the August EIA-914. While the injection rate over the
past month has suggested that production remained flat,
we believe that the recent spike in Canadian imports has
masked the lower production in the US. Last week, for
the first time since February, we saw a build that
was smaller than the same week last year. The lower
figure was helped by hot weather, demonstrating that
the shape of the nat gas market into the late summer will
likely be a function of weather as much as new supply
trends. It is therefore in our view too early to become
overly bearish pumpers and drillers, and we highlight
NBR, BJS, CRR and PTEN as well capitalized ideas.