As the year draws to a close, attention turns to expectations for 2015. December usually sees a variety of eagerly anticipated E&P spend forecasts, however early indications suggest we will have a mixed bag of operators' increased/decreased spending plans. The drivers for this can be project-specific – biased by exposure to short or long-term projects – and also geographic.

Whilst the spending surveys are a useful guide, what can be learned right now from the drilling and production data? A review of our latest quarterly DW D&P output throws out some interesting geographic trends and here we pick two to illustrate the point:

The USA, the world's largest drilling and OFS market seems to have enjoyed a bumper year-to-date. Our expectations for land drilling in 2014 are just over 40,000 wells, versus 37,677 in 2013. The market has been buoyed by an upturn in activity in Texas shale formations, with the Texas Railroad Commission reporting completions increased by 21% for the first three quarters, with 23,149 over the year.

In contrast Russia, another major OFS market, appears to be suffering. Drilling is conducted by both independent contractors and directly by some E&P companies. Despite the long-term positive underlying drivers, the impact of both geopolitical turmoil and weak oil prices is becoming evident. The largest drilling contractor, EDC has reported drilling volumes down 7% for the first three quarters. Surgutneftegas a 17% drop, whilst for the first half of 2014 Rosneft was down 1.6% and Gazprom reports a slight upturn. Furthermore, international oil companies such as ExxonMobil and Shell have had to suspend activities in Russia as a result of sanctions imposed on the country.

Overall, our expectation is that Russian drilling will be down some 10% in 2014, at 6,700 wells, and will remain so or slightly lower in 2015 before recovering over the period to 2020.

Instances of double-digit movements in drilling from one year to the next are comparatively unusual, particularly so for large, established markets. But as the above illustrates, attempts to generalize the outlook for the whole E&P sector are difficult, and the "devil is always in the detail."

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The Seaway line reversal in May of 2014 marked a turning point in the North American crude oil market with the draining of record stocks at the Cushing, Oklahoma storage hub. Attention has now shifted to the U.S. Gulf Coast and its capacity to move, store, refine, and export the glut of U.S. crude oil.

The goal of Genscape's new U.S. Gulf Coast Oil Supply Chain Service is to provide a holistic view of market fundamentals in the region to help traders, analysts, hedge funds, and infrastructure owners stay ahead of the evolving supply-demand dynamic. Using a range of patented, proprietary monitoring technology and a team of market experts, the comprehensive service provides granular inventory levels, 30-minute pipeline flows, and real-time camera tracking of refinery performance to provide unmatched transparency to this crucial region.

"We used to look at the Cushing storage hub for insight into the U.S. oil supply dynamic. That's not enough anymore," said Chris Sternberg, managing director of oil at Genscape. "Now, we need to look at the Gulf Coast and understand in detail what's happening to the oil and where it's going. We're excited to be filling this information gap with granular, measured data on oil fundamentals that will help market participants manage risk and opportunities."

"The incremental barrel produced is now heading to the Gulf during periods of oversupply or high refinery demand," said Dominick Chirichella of the Energy Management Institute. "Without the economic incentive to store oil at Cushing, physical and financial players will be making moves based on activity in the Gulf."

Furthermore, "with more than eight million bpd of refining capacity, the Gulf Coast is quickly becoming the most critical location for crude spot market activity and potential benchmarks to reflect market value for North America," according to Genscape's latest white paper, The Evolving Domestic & Global Crude Oil Pricing Landscape: An Inside Look at the Gulf Coast Infrastructure & Supply Chain. The paper argues that the current fragmentation of spot markets in the Gulf is causing market participants to struggle and creates the need for "new, granular fundamental benchmarks to support market efficiency and spur price benchmark evolution."

NYC-based PIRA Energy Group believes that falling crude prices to slow midcontinent production growth. In the U.S., the stock excess versus last year increased and with a significant draw last year, the commercial excess should grow even more for the week of November 7. In Japan, crude runs fell, imports rose and stocks built. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Falling Crude Prices to Slow Midcontinent Production Growth
Crude prices plunged in October, with Brent falling nearly $10/Bbl and WTI ending the month below $80. Midcontinent differentials were little changed, except for those in the Permian Basin, where new pipeline capacity allowed prices to rebound from deep third quarter discounts. Midcontinent production is still rising, but lower prices will greatly reduce next year's growth.

Creeping Excess Storage
A look back at the most recent month of DOE weekly data shows a significantly smaller stock draw, compared to the same month last year, in spite of demand being up, year-on-year. A 630 MB/D difference in U.S. commercial stock change is a reflection of a global imbalance of supply over demand, this year compared to last year, of over 1 MMB/D. Far from being a mystery, this imbalance is apparent in stocks around the world. For winter, we expect the surplus to manifest itself in smaller draws, which will be reflected in a creeping stock excess. Come the spring, this surplus will appear as higher outright inventory levels. For this week, the stock excess versus last year increased to 15.4 million barrels, and with a significant draw last year, the commercial excess should grow even more for the week of November 7.

Japanese Crude Runs Fall, Imports Rise, Stocks Build
Crude runs eased to their lowest level since early July. Crude imports rose such that stocks built. Gasoline and gasoil demands were modestly changed and both product stocks drew, with the biggest draw being for gasoil. Kerosene demand was relatively strong and stocks posted their first seasonal draw. Refining margins are better with all the major product cracks firming.

Medium-Term Crude and Gas Price Outlooks Revised Down
Many of the bearish guideposts for our low case have emerged in the past six months. In the absence of new supply disruptions, we are likely to see prices at or below current levels for the next several years. We still believe that demand growth will return to a trend of 1.2 MMB/D, and combined with high-cost project cuts, this will lead to strengthening prices later in the decade. In the case of North American natural gas, the extremely strong growth in supply, even at sub-$4 prices and declining rig counts, suggests that prices are likely to stay lower for longer. Those changes, coupled with a weaker outlook for global gas demand growth, have led to reductions in the European and Asian gas outlooks as well.

U.S. LPG Stocks Remain Stubbornly High
Last week, U.S. propane inventories posted their second draw this heating season. The relatively small draw was influenced by a decline in both imports and in apparent demand. Inventories ended the week at 77.7 MMB, while the surplus expanded to 18.4 million barrels as the year ago withdrawal of 2.5 MMB stood much higher than the recent one. High U.S. stocks will ultimately need to clear by export. National LPG stocks are now well poised to both supply the harshest of winters and an increasing export market. Weaker prices relative to export destinations will be necessary for exports to increase.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.