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Despite Huge Losses Oil Companies Reluctant To Shut In Production

Despite Huge Losses Oil Companies Reluctant To Shut In Production

As energy investors look for reasons to be optimistic, many are keeping close tabs on supply figures.

There are some signs that supply is taking a hit from disparate parts of the globe. According to Bloomberg, China might see its output dip by 3 to 5 percent in 2016, down from a record high of 4.3 million barrels per day (mb/d) last year. If that occurs, it would be the largest drop since at least the early 1990s and the first decline in seven years.

China’s oil production does not get nearly as much press as its consumption figures do, but China is actually the fifth largest oil producer in the world. However, China’s onshore oil fields – where the country gets 80 percent of its production – are mature. Without ongoing investment, production tends to decline. Any sources of new production will come from more expensive offshore or tight oil.

“We expect significant cuts in upstream production as the companies cut output at loss-making fields,” Neil Beveridge, an analyst at Sanford C. Bernstein & Co, told Bloomberg in an interview. “Chinese explorers need to take more radical action to cut operating costs and increase efficiency.” China’s Cnooc, one of its main oil producers, probably has a breakeven price near $41 per barrel. The company says that it will spend less and produce less in 2016.

In the U.S., there are signs of adjustment as well, although very slowly. Continental Resources gutted its spending program for 2016, reducing capex by 66 percent. That will translate in a dip in production. Output will fall steadily over the course of the year, and the company expects to close out the fourth quarter with production of 180,000 to 190,000 barrels of oil equivalent per day, which could be 10 to 15 percent below its 2015 average.

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