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An Alarming Trend Is Developing In US Shale Oil Production

May 8, 2024

Summary

U.S. oil production is currently around ~13 million b/d.
But despite the overall meaningful decrease in Lower 48 gas production, associated gas production remains strong.
In addition, EIA’s reported weekly NGL production continues to outpace crude production growth.
The market still falsely believes that US shale will continue for many years to come, but we think the reality is different from that.
I do much more than just articles at HFI Research: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Red Electric Megaphone on Red Background Stock Photo

EIA oil storage report was fairly bullish today, with the crude draw of 6.4 million bbls outpacing our forecast of -4.33 million bbls. More importantly, in these weekly reports, we watch just how accurate we are at estimating U.S. crude production. And so far, things are looking good.

Looking at our real-time US oil production data, we saw a brief spike in implied US oil production in March. Considering that the weather fully normalized in the 2nd half of February and into March, US shale oil producers likely brought back production to full capacity by early March and sold off stored-up inventory. This likely caused a dislocation in our modified adjustment, which showed a false bump higher in production.

Why do we say that it was temporary? Well, if you look at the latest reading, the implied US oil production figure is back down to ~13 million b/d.

Another good way for readers to gauge just how accurate we are on US oil production is by looking at our US weekly crude storage estimate figure vs the EIA. If our draw is smaller than what EIA reports, then it implies a lower US oil production figure than we estimated…

…click on the above link to read the rest of the article…

The world has a major crude oil problem; expect conflict ahead

May 1, 2022

The world has a major crude oil problem; expect conflict ahead

Media outlets tend to make it sound as if all our economic problems are temporary problems, related to Russia’s invasion of Ukraine. In fact, world crude oil production has been falling behind needed levels since 2019. This problem, by itself, encourages the world economy to contract in unexpected ways, including in the form of economic lockdowns and aggression between countries. This crude oil shortfall seems likely to become greater in the years ahead, pushing the world economy toward conflict and the elimination of inefficient players.

To me, crude oil production is of particular importance because this form of oil is especially useful. With refining, it can operate tractors used to cultivate crops, and it can operate trucks to bring food to stores to sell. With refining, it can be used to make jet fuel. It can also be refined to make fuel for earth moving equipment used in road building. In recent years, it has become common to publish “all liquids” amounts, which include liquid fuels such as ethanol and natural gas liquids. These fuels have uses when energy density is not important, but they do not operate the heavy machinery needed to maintain today’s economy.

In this post, I provide an overview of the crude oil situation as I see it. In my analysis, I utilize crude oil production data by the US Energy Information Agency (EIA) that has only recently become available for the full year of 2021. In some exhibits, I also make estimates for the first quarter of 2022 based on preliminary information for this period.

[1] World crude oil production grew marginally in 2021.

…click on the above link to read the rest of the article…

January Non-OPEC Oil Production Climbs Again

May 10, 2021

January Non-OPEC Oil Production Climbs Again

Below are a number of oil (C + C ) production charts for Non-OPEC countries created from data provided by the EIAʼs International Energy Statistics and updated to January 2021. Information from other sources such as OPEC, the STEO and country specific sites such as Russia, Norway and China is used to provide a short term outlook for future output and direction for a few countries and the world.

Non-OPEC production continued to climb from the May 2020 low of 45,272 kb/d. January’s output increased by 448 kb/d to 48,862 kb/d from December. The January increase was primarily driven by output increases from Brazil (147 kb/d) and China (164 kb/d). From May 2020 to January 2021, production increased by a total of 3,590 kb/d or an average of close to 450 kb/d/mth.

Using data from the April 2021 STEO, a projection for Non-OPEC output was made to December 2022 (red graph). Output is expected to reach 52,064 kb/d, which is lower than the previous high of December 2019, by close to 500 kb/d. February 2021 output is projected to drop by 1,534 kb/d due to the disruption caused by the major snow storm in the L48 U.S. states.

Ranking Production from NON-OPEC Countries

Above are listed the worldʼs 11th largest Non-OPEC producers. They produced 83.6% of the Non-OPEC output in January. On a YoY basis, Non-OPEC production decreased by 3,601 kb/d while on a MoM basis, production increased by 448 kb/d to 48,862 kb/d. World YoY output is down by 6,906 kb/d. As noted above, the January increase was primarily driven by output increases from Brazil (147 kb/d), China (164 kb/d) and Russia (111 kb/d), countries with the largest monthly increases.

The EIA reported Brazilʼs January production increased by 147 kb/d to 2,873 kb/d.

According to this source February’s output dropped by 8% from January to 2,730 kb/d and then recovered to 2,844 kb/d in March, according to this source (Red Markers).

…click on the above link to read the rest of the article…

Update on the WTF Collapse of Gasoline & Jet Fuel Consumption: The Holiday Period

January 9, 2021

Update on the WTF Collapse of Gasoline & Jet Fuel Consumption: The Holiday Period

Long-term structural issues have long dogged these fuels. Then came the Pandemic.

During the holiday shopping and travel period in December and early January, ten months into the Pandemic, gasoline consumption in the US was down about 12% from a year ago, jet fuel consumption was down 38% from a year ago, but distillate consumption – diesel, heating oil, fuel oil – was about flat with a year ago. Consumption of all three combined, under the impact of long-term structural issues and then the Pandemic, were down to levels first seen in the mid-1990s.

As of the latest four-week period through January 1, gasoline consumption fell to 7.89 million barrels per day (mb/d), according to EIA data. This was below where it had been over the same period at the end of 1994 (8.04 mb/d). The chart also shows the long-term structural demand issues, where in the 12 years before the Pandemic, gasoline consumption, after a big drop during the Great Recession and then a recovery, had gone nowhere. This dynamic then got whacked by the changes in driving patterns during the Pandemic:

The EIA tracks consumption of fuel in terms of product supplied by refineries, blenders, etc., and not by retail sales at gas stations.

In March, demand for gasoline had collapsed as millions of people lost their jobs, and therefore didn’t commute, and as others switched to work-from-home and therefore didn’t commute either. In the four-week period ended April 24, average gasoline consumption plunged by 44% year-over-year, to 5.3 million mb/d, by far the lowest in the EIA’s data going back to 1991.

Consumption in the latest four-week period through January 1 was still down 12% from a year ago. Since July, consumption has been down between 8% and 13% year-over-year:

…click on the above link to read the rest of the article…

Is EIA Data Disguising A Disastrous Decline In U.S. Shale?

May 14, 2020

Is EIA Data Disguising A Disastrous Decline In U.S. Shale?

The Trump administration claims that the U.S. is “transitioning to greatness,” and that energy companies are going to see “massive gains.” U.S. Secretary of Energy Dan Brouillette says there is “stability” in the oil market, and that economic activity will “explode” on the other side of the pandemic.

Dan Brouillette✔@SecBrouillette

Thanks to the leadership of President @realDonaldTrump, the transition to greatness is well underway, and our economy along with our U.S. energy companies are going to see massive gains on the other side of this pandemic.

Meanwhile, back in reality, U.S. oil production continues to decline as drillers shut in wells and cut back spending. Output has already declined by 1.1 million barrels per day (mb/d), and more losses are likely. New data from Rystad Energy predicts U.S. oil production declines of roughly 2 mb/d by the end of June.

“Actual production cuts are probably larger and occur not only as a result of shut-ins, but also due to a natural decline from existing wells when new wells and drilling decline,” Rystad said in a statement.

Energy expert Philip Verleger, in an article for Energy Intelligence reports that the magnitude of output declines is much larger. His latest research shows that production as of May 10 is down by almost 4 million bpd from its peak as the below chart shows.

Source: PK Verleger LLC

To be sure, the U.S. government is doing quite a bit to try to bailout the oil industry. A new report finds that some 90 oil and gas companies will benefit from the Federal Reserve’s corporate bond buying program. The Trump administration is also quietly reversing environmental protections on the oil and gas industry.

…click on the above link to read the rest of the article…

Postmortem of the Infamous Day WTI Crude Oil Futures Went to Heck in a Straight Line

April 25, 2020

Postmortem of the Infamous Day WTI Crude Oil Futures Went to Heck in a Straight Line

The US Energy Information Agency (EIA) dissects the historic event.

“It’s not often that we’re served up a WTF moment like this,” I wrote on April 20, when the May contract for crude-oil benchmark-grade West Texas Intermediate (WTI) plunged to minus -$37.63 in a straight line, thus violating the WOLF STREET beer-mug dictum that “Nothing Goes to Heck in a Straight Line.” It was the first time in history that a US crude oil futures contract plunged into the negative. The peculiar dynamics that came together and caused this are expected to continue and some of them are expected to get worse over the next month or two. So here is the postmortem of this infamous day, by the US Energy Information Agency (EIA).

By the Energy Information Agency:

WTI crude oil futures prices fell below zero because of low liquidity and limited available storage.

On Monday, April 20, 2020, New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil front-month futures prices fell below zero dollars per barrel (b)—at one point, trading at -$40.32/b (Figure 1)—and remained below zero for part of the following trading day. Monday marked the first time the price for the WTI futures contract fell below zero since trading began in 1983.

Negative prices in commodity markets are very rare, but when they occur they typically indicate high transactions costs and significant infrastructure constraints.

In this case, the WTI front-month futures contract was for May 2020 delivery, and the contract was set to expire on April 21, 2020. Market participants that hold WTI futures contracts to expiration must take physical delivery of WTI crude oil in Cushing, Oklahoma.

…click on the above link to read the rest of the article…

USA and World Oil Production

August 6, 2019

USA and World Oil Production

The USA data below was taken primarily from the EIA’s Petroleum Supply Monthly while some were taken from the EIA’s Monthly Energy Review.

I have some bad news to report. The EIA no longer published World production data or Non-OPEC production data. This data had previously been published in the Monthly Energy Review.

The Monthly Energy Review’s data was one month behind the Petroleum Supply Monthly but now they jumped two months and are now one month ahead of the Petroleum Supply Monthly. They now publish the previous month’s numbers, June in this case, but now publish only US data. The Petroleum Supply Monthly is unchanged.

EDIT: The Petroleum Supply Monthly does publish some, incomplete, world data… through April or one month behind their USA data. I will use that with an explanation and comments next month.

The closest I can come to World oil production, through June, is the combined production of OPEC, Russia, the USA, and Canada. This is 70% of total World Production.

Here is the other 30% of World oil production. However, this data is only through March. Unfortunately, I can never update this chart because the EIA no longer publishes the data

This 30% of World oil production peaked in late 2015 and has declined an average of 450,000 barrels per day per year every year since.

Actually, in 2015 these countries averaged about 32% of World oil production but now averages about 29%.

I have no other source for World oil production. The IEA publishes quarterly projected data for the World and Non-OPEC. But this data is total liquids and only quarterly projections that bears little resemblance to actual C+C production.

…click on the above link to read the rest of the article…

Is US Shale Cannibalizing Itself?

July 9, 2019

Is US Shale Cannibalizing Itself?

U.S. oil production continues to grow, but the shale industry is in the midst of a deceleration as low oil prices and a financial squeeze slow the pace of drilling.

The U.S. added 246,000 bpd of fresh supply in April, the latest month for which data solid is available. That put to rest concerns that the industry was in the midst of contraction, after production fell in January and February (some of which was due to offshore maintenance). Even as the rig count continues to fall, production grinds higher.

The EIA expects output to grow by another 70,000 bpd in July, with the Permian alone adding 55,000 bpd.

But the rate of growth is slowing. In April, production was up 1.6 million barrels per day (mb/d) compared to the same month a year earlier. By any measure, that is a massive increase. But it is down sharply from the nearly 2.1 mb/d year-on-year increase seen in August 2018, which looks set to be the peak in terms of the pace of growth.

U.S. oil production is not in danger of outright decline, not for the foreseeable future. But growth is clearly slowing. The U.S. could add 1.3 mb/d of new supply this year, according to an average of forecasts from multiple analysts, compiled by Reuters. That figure would be down from 1.5 mb/d of additional supply that came online in 2018. Related: Another Beneficiary Of The OPEC Deal Emerges

Financial stress is spreading, and top industry executives in Texas are arguably at their gloomiest in years. Consolidation and bankruptcies could pick up pace in the next few months, a bankruptcy attorney told Reuters.

…click on the above link to read the rest of the article…

NEXT OIL DOMINO TO FALL? Mexico Becomes A Net Oil Importer

March 28, 2019

NEXT OIL DOMINO TO FALL? Mexico Becomes A Net Oil Importer

While Mexico suffered the bloodiest year of violent deaths in 2018, even bigger trouble may be ahead for the embattled country. For the first time in more than 50 years, Mexico has become a net importer of oil. This is undoubtedly bad news for the Mexican Government as it has relied upon its oil revenues to fund a large percentage of its public spending.

However, it wasn’t always this way. After the discovery of the huge Cantarell Oil Field in the Gulf of Mexico in 1976, Mexico’s oil production surged from 894,000 barrels per day to a peak of 3.8 million barrels per day (mbd) in 2004. That year, Mexico’s net oil exports exceeded 1.8 mbd.

Unfortunately, the downturn of Mexico’s oil production was mainly due to the peak and decline of the Cantarell Oil Field, which topped out at 2.1 mbd in 2004 and is now below 135,000 barrels per day:

With the rapid decline in Cantarell’s oil production, Mexico’s net oil exports also plummeted from 1.8 mbd in 2004 to only 314,000 barrels per day in 2017. However, the situation for Mexico’s net oil exports continued to deteriorate in 2018 as its domestic oil supply fell to a new low at the end of the year.

According to several sources, the BP 2018 Statistical Review, IEA’s OMR Reports, and the EIA’s data on World Oil Production, Mexico became a net oil importer in November 2018:

I find it strange that this has not yet been mentioned in the news as it is a very critical factor for the future of Mexico. Now, I would like to qualify that the data I am using is accurate. I found Mexico’s total petroleum production and consumption data from the EIA, the U.S. Energy Information Agency’s World Oil Production Browser, the IEA’s, the International Energy Agency OMR Reports, and BP’s 2018 Statistical Review.

…click on the above link to read the rest of the article…

What’s Behind The Crash In Crude?

December 19, 2018

What’s Behind The Crash In Crude?

Oil prices crashed to new one-year lows on Tuesday, dragged down by a deepening sense of global economic gloom as well as fears of oversupply in the oil market itself.

The reasons for the sudden meltdown were multiple. Rising crude oil inventories and expected increases in shale production weighed on oil prices, but the price crash was accentuated by the broader selloff in financials.

Genscape said that inventories are rising, which has raised fears of tepid demand amid soaring supply growth. “The Cushing number came in higher than anticipated … it’s definitely pointing to the concern that there’s more supply and demand is weakening,” said Phil Flynn, analyst at Price Futures Group in Chicago, according to Reuters. “The market is still very nervous about that.”

Crude prices fell 4 percent on Monday and about 7 percent on Tuesday. WTI dropped below $47 per barrel and Brent fell to the $56 handle.

The EIA said in its latest Drilling Productivity Report that it expects U.S. shale production to top 8.1 million barrels per day (mb/d) in January, rising by a massive 134,000 bpd month-on-month. The Permian alone will see production rise by 73,000 bpd next month. By way of context, the gains in the Permian are bigger than even some of the large monthly declines that we have seen in Venezuela, for instance.

Still, with WTI dropping below $50 per barrel, shale drillers will start to face increasing financial strain. That could force a slowdown in the shale patch. “We’re probably going to see a supply slowdown in the U.S.,” Michael Loewen, a commodities strategist at Scotiabank, told Bloomberg. “I do think that producers will react.”

…click on the above link to read the rest of the article…

What Crashing Refining Margins Mean For Oil Markets

December 3, 2018

What Crashing Refining Margins Mean For Oil Markets

Oil prices have plunged to one-year lows, but refiners in certain parts of the U.S. are not benefitting from cheaper crude.

According to new data from the EIA, refining margins for motor gasoline have fallen to five-year lows. “Flattening year-over-year growth in gasoline demand in the United States, combined with high levels of refinery output, have contributed to low or negative motor gasoline refining margins for refiners along the East and Gulf Coasts,” the EIA said on November 27. Gasoline refining margins have been declining since August.

In November, U.S. gasoline demand is expected to have averaged 9.2 million barrels per day (mb/d), down 262,000 bpd from a year earlier.

(Click to enlarge)

Meanwhile, prices for distillates, such as diesel, are much higher. The discrepancy is notable, and the markets for gasoline and distillates have diverged sharply this year. The forthcoming 2020 International Maritime Organization regulations on sulfur content in maritime fuels is set to push extremely dirty heavy fuel oil out of the mix for ship-owners. One of the most important replacements for fuel oil be diesel and gasoil – in other words, distillate demand is set to spike at the start of 2020. In anticipation of these regulations, distillate prices are seeing upward pressure.

With diesel prices on the rise and gasoline prices heading in the other direction, refiners might want to maximize diesel output. However, things aren’t that simple. As the EIA notes, for every barrel of crude oil processed in a refinery, it tends to yield twice as much gasoline as it does diesel. “As a result, although gasoline margins have been low recently, refiners cannot completely stop making gasoline in favor of other petroleum products, such as distillate,” the EIA said.

…click on the above link to read the rest of the article…

EIA’s Latest USA & World Oil Production Data

September 5, 2018

EIA’s Latest USA & World Oil Production Data

These first charts are taken from the EIA’s Monthly Crude Oil and Natural Gas Production. The data are through June 2018 and is in thousand barrels per day.

US C+C production was up 231,000 barrels per day in June to 10,674,000 bpd, an all-time high.

Texas was up 165,000 barrels per day in June to 4,410,000 bpd.

New Mexico was up 5,000 barrels per day in June to 657,000 bpd. The Permian extends into New Mexico.

North Dakota was down 16,000 barrels per day in June to 1,220,000 bpd.

Oklahoma was down 3,000 barrels per day in June to 526,000 bpd.

Colorado was down 24,000 barrels per day in June to 423,000 bpd.

California was down 2,000 barrels per dayin June to 462,000 bpd. California peaked in February of 1987 at 1,109,000 bpd.

Alaska was down 45,000 barrels per day in June to 451,000 bpd. June, July, August, and part of September are the prime maintenance months for Alaska. The maintenance includes pigging the pipeline and overhauling the pumps along the pipeline.

The Gulf of Mexico was up 154,000 barrels per day in June to 1,658,000 bpd. Just a couple of years ago the EIA was predicting the GOM to be at almost 2 million barrels per day by now. I really don’t think that is going to happen anytime soon.

I wanted US Less Permian but the EIA doesn’t break it out that way. So I will just have to settle for all the Permian plus Eagle Ford and East Texas. East Texas is in decline while Eagle Ford is still increasing. But my point is the rest of the US seems to be settling out to about where it was in 2015.

…click on the above link to read the rest of the article…

Why oil prices can’t rise very high, for very long

April 20, 2018

Why oil prices can’t rise very high, for very long

Oil prices are now as high as they have been for three years. At this writing, Brent is $74.14 per barrel and West Texas Intermediate is at $68.76. These prices aren’t really very high, if a person looks at the situation from a longer term point of view than the last three years.

Figure 1. EIA chart of weekly average Brent oil prices, through April 13, 2018.

There is always a question of how high oil prices can go, and for how long.

In fact, we have many resources, of many kinds, whose prices of extraction keep rising higher. For example, obtaining fresh water for the world’s population keeps getting more and more expensive. Some parts of the world need to resort to desalination.

The world economy cannot withstand high prices for any of these resources for very long. Certainly, it cannot withstand high prices for a combination of necessary resources, because people need to cut back on other purchases, in order to afford the necessities whose prices are rising. This article is a guest post by another actuary, who goes by the pseudonym Shunyata. He explains in a different way why high resource prices cannot last, whether they are for oil, or natural gas, water, or even fresh air.

Dear Readers:

As you are no doubt aware, Gail has created a fantastic portfolio of blogs that explore our energy/financial/economic system, blogs that reveal many hidden or misunderstood aspects of our situation. I have found these discussions invaluable and share them wherever I am able; to solve our societal problems we need to develop a societal understanding of these issues.

…click on the above link to read the rest of the article…

How EIA Guestimates Keep Oil Prices Subdued

September 4, 2017

How EIA Guestimates Keep Oil Prices Subdued

The EIA has once again undercut its previous estimates for U.S. oil production, offering further evidence that the U.S. shale industry is not producing as much as everyone thinks.

The monthly EIA oil production figures tend to be more accurate than the weekly estimates, although they are published on several months after the fact. The EIA just released the latest monthly oil production figures for June, for example. Meanwhile, the agency releases production figures on a weekly basis that are only a week old – the latest figures run up right through August.

The weekly figures are more like guestimates though, less solid, but the best we can do in nearly real-time. It is not surprising that they are subsequently revised as time passes and the agency gets more accurate data.

But the problem is that for several months now, the monthly and the weekly data have diverged by non-trivial amounts. The weekly figures have been much higher than what the monthly data reveal only later. And remember, it is the monthly data that tends to be more accurate.

Let’s take a look. A month ago, I wrote about how the EIA’s monthly data for May put U.S. oil production at 9.169 million barrels per day (mb/d). But back in May, the EIA’s weekly figures told a different story. The agency thought at the time that the U.S. was producing nearly 200,000 bpd more than turned out to be the case. Here were the weekly estimates at the time:

• May 5: 9.314 mb/d

• May 12: 9.305 mb/d

• May 19: 9.320 mb/d

• May 26: 9.342 mb/d

But two months later, the EIA published its final estimate for May, and put the figure at 9.169 mb/d. So, as it turns out, the U.S. was producing much less in May than we thought at the time.

…click on the above link to read the rest of the article…

Huge Decline In U.S. Proved Oil And Gas Reserves

December 19, 2016

Huge Decline In U.S. Proved Oil And Gas Reserves

Proved oil and gas reserves down 11.8 percent and 16.6 percent, respectively, from year-end 2014

EIA has downgraded its estimates of proved oil and gas reserves in the U.S., according to its Crude Oil and Natural Gas Proved Reserves, Year-end 2015 report, released today.

Proved reserves of crude oil in the U.S. declined by 4.7 billion barrels or 11.8 percent from their year-end 2014 level to 35.2 BBbls at year-end 2015. Natural gas proved reserves decreased 64.5 Tcf to 324.3 Tcf, a 16.6 percent decline.

Average oil and gas prices in 2015 dropped 47 percent and 42 percent, respectively, from 2014, resulting in more challenging economic and operating conditions. This caused operators to postpone or cancel development plans and revise their proved reserves downward.

Discoveries and revisions

Proved reserves are volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

The charts below break down the different additions and revisions contributed to the changes.

(Click to enlarge)

Total discoveries of crude oil kept pace with reserve decreases from production, with 150 million more barrels of crude and lease condensate produced than were found.

Discoveries are defined as new fields or reservoirs in previously discovered fields. Extensions are additions to reserves that resulted from additional drilling and exploration in previously discovered reservoirs. In a given year, extensions are typically the largest percentage of total additions while discoveries are usually a small percentage of annual reserve additions.

Revisions primarily occur when operators change their estimates of what they will be able to produce from the properties they operate in response to changing prices or improvements in technology.

…click on the above link to read the rest of the article…

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