GlobalData forecast model measures the reaction of rigs to three different price levels, with WTI = US$ 55/70/85 per barrel of oil. In all three scenarios, crude oil production is expected to remain below pre-pandemic levels in 2021 and 2022, then surpassing pre-pandemic levels as early as 2023 in the most bullish scenario, with production level as high as 14 mmbd. US domestic production is currently averaging around 11 mmbd, accounting for at least 74% of the input into refineries.
Net import volume remains relatively stable, averaging at 2.9 mmbd in 2021 compared to 2.8 mmbd in 2020, lower than pre-pandemic level of 3.85 mmcd in 2019, due to build-up of petroleum products stock inventory that has been used to meet some of the increase in demand. Gasoline is the main driver in petrochemical demand, while aviation fuel is recovering at a slower pace, as international travelling is still limited due to the concern over Delta variant in other countries.
In 2020, the oil price crash happened over a period of 4 months, followed by a sharp recovery up to US$ 73 per barrel. However, operators are still hesitant to take advantage of the price increase, focusing on retaining capital and fixing balance sheet. The rig count only started to pick up after 5 months since the low of oil price in April 2020, with the increase in rig count averaging approximately 21 new rigs per month.
Due to the low oil price environment in 2020, many operators were quick to react to cut production and capital expenditure. This has also indirectly led to a build-up in drilled uncompleted well (DUCs) inventory.In 2020, DUCs inventory build up to a high of 8,965 count in July 2020. Since then, operators started drawing down their inventory of DUCs to save on capital expenditure going forward while maintain the production guidance outlook for 2021.
M&A activity is also starting to pick up again as oil price started to recover from the low of 2020, and this uptrend is expected to sustain throughout 2021. Larger companies are acquiring smaller operators, which now are generally healthier in their balance sheet, and can increase the competitiveness of larger companies and further improve cost efficiency. Throughout 2021, the biggest deal that was completed includes Pioneer Natural Resources acquiring DoublePoint Energy for US$ 6.2 billion, followed by EQT acquisition from Alta Resources of US$ 2.9 billion.
As per GlobalData analysis of the hedging strategy of 10 major US oil and gas producers, the average percentage of production hedged in both oil and gas is approximately 60%. In Q1 2021, these oil producers suffered major losses due to a derivative effect, costing it approximately 43% of their revenue. By contrast, gas producers only suffered a loss 15% of their revenue.