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U.S. crude oil production experienced a surprising drop last week, even though domestic demand for oil and petroleum products increased. This came as a surprise to some energy analysts. Furthermore, the IEA, International Energy Agency came out with a forecast for global oil demand to fall 8.1 million barrels per day in 2020.

I have to say, this is terrible news coming from the IEA. Just last month, the IEA stated that global oil demand could fall to 7.1 mbd (million barrels per day), but only recently updated their forecast for an 8.1 mbd decline in 2020 due to “gloomy airline travel.”

Actually, we don’t really know what global oil demand will look like by the end of the year. There are way too many variables. Even though the Fed and central banks are planning to pump in more stimulus plans over the next few months, the negative SNOWBALL EFFECT of all the closed stores, unemployment, commercial real estate armageddon, collapse in airline travel, supply chain disruptions, and so forth, will likely impact oil demand to a greater degree by the end of 2020 and into 2021.

Another CURVEBALL to hit the United States is the coming collapse in U.S. Shale oil production. While some companies have curtailed production, and are now bringing some of it back online, total U.S. crude oil production surprisingly declined to 10.7 mbd last week.

U.S. crude oil production reached a peak of 13.1 mbd in late February, right before the global contagion and shutdown of economies. It fell to a low of 10.5 mbd in mid-June, then rebounded to 11.0 mbd for the next two months. However, in the lasted EIA, U.S. Energy Information Agency weekly report, U.S. oil production fell from 11.0 mbd to 10.7 mbd last week.

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Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines

May 12, 2019

Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines

The global economy would be in serious trouble if it weren’t for the rapid growth of U.S. shale oil production. Since the 2008 financial crisis, U.S. shale oil production has increased by more than 6 million barrels per day. Without these additional barrels of oil, the massive money printing and asset purchases by the central banks would not have been as successful in propping up the economy and markets.

We must remember this simple fact; energy drives the markets, not finance. Finance steers the market. So, for the economy to expand, there must be oil production growth. However, it would be unwise for the market-economy to rely upon the U.S. shale industry as the leading driver of global oil production growth for the foreseeable future.

Why? Well, there are several reasons, but let’s first look at how much the increase in U.S. shale oil production has accounted for the rise in global oil supply since 2008. Of the 9.6 million barrels per day (mbd) of global oil production growth 2008-2017, the United States supplied two-thirds or 6.3 mbd of the total:

Interestingly, global oil production minus the United States and Canada didn’t increase in 2009, 2010 or 2011. There was a small bump up in 2012 and finally by 2105-2017 did global oil production minus the U.S. and Canada increase by 1.7 mbd. Now, let me repeat that. If we add up ALL THE OTHER COUNTRIES in the world producing oil, the net increase from 2008 to 2017 was only 1.7 mbd. Thus, of the total 9.6 mbd of global oil production growth 2008-2017, the U.S. (6.3 mbd) and Canada (1.6 mbd) accounted for 82% of the total.

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U.S. Oil Production Is Set To Soar Past 12 Million Bpd

November 8, 2018

U.S. Oil Production Is Set To Soar Past 12 Million Bpd

Rising shale production is putting the United States on track to hit the 12 million bpd oil production mark sooner than previously forecast, the Energy Information Administration (EIA) said in its November Short-Term Energy Outlook (STEO).

Next year’s U.S. crude oil output is now expected to average 12.1 million bpd, up from a forecast of 11.8 million bpd just a month ago in the October STEO.

U.S. crude oil production reached a new monthly record of 11.3 million bpd in August 2018, exceeding 11 million bpd for the first time. Production in August was 290,000 bpd higher than expected in the October STEO, and it was this higher level that raised the baseline for the EIA’s forecast for production in 2019.

Comparing the forecasts in the latest STEO with the October estimates, the EIA now sees U.S. crude oil production hitting the 12-million-bpd mark in the second quarter of 2019 rather than the fourth quarter.

The EIA raised its 2018 production forecast by 1.5 percent compared to the October STEO, to 10.9 million bpd, and the 2019 forecast by 2.6 percent from 11.76 million bpd to 12.06 million bpd.

While the EIA lifted its projections for U.S. oil production, it revised down its forecasts for oil prices in 2019. In the November outlook, it forecasts Brent Crude prices of $72 per barrel in 2019 on average, which is $3 a barrel lower than previously forecast. The EIA sees WTI Crudeprices to average $65/b next year, down by $5/b from the previous estimate.

“The lower crude oil price forecasts are partly the result of higher expected crude oil production in the United States in the second half of 2018 and in 2019, which is expected to contribute to growth in global oil inventory and put downward pressure on crude oil prices,” the EIA said.

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

Top U.S. Shale Oil Fields Decline Rate Reaches New Record…. Half Million Barrels Per Day

July 26, 2018

Top U.S. Shale Oil Fields Decline Rate Reaches New Record…. Half Million Barrels Per Day

While the U.S. reached a new record of 11 million barrels of oil production per day last week, the top five shale oil fields also suffered the highest monthly decline rate ever. This is bad news for the U.S. shale industry as it must produce more and more oil each month, to keep oil production from falling.

According to the newest EIA Drilling Productivity Report, the top five U.S. Shale Oil fields monthly oil decline rate is set to surpass a half million barrels per day in August. Thus, the companies will have to produce at last 500,000 barrels of new oil next month just to keep production flat.

Here are the individual shale oil field charts from the EIA’s July Drilling Productivity Report:

The figures that are shown above the UP arrow denote the forecasted new production added next month while the figures above the DOWN arrow provide the monthly legacy decline rate. For example, the chart on the bottom right-hand side is for the Permian Region. The EIA forecasts that the Permian will add 296,000 barrels per day (bpd) of new shale oil production in August, while the existing wells in the field will decline by 223,000 bpd.

If we add up these top five shale oil fields monthly decline rate for August will be 503,000 bpd. Thus, the shale oil companies must produce at least 503,000 bpd of new oil supply next month just to keep production from falling. And, we must remember, this decline rate will continue to increase as shale oil production rises.

We can see this in the following chart below. Again, according to the EIA’s figures, the top five U.S. shale oil fields monthly legacy decline rate increased from 398,000 bpd in January to 503,000 bpd for August:

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

Is History Repeating Itself In Oil Markets?

February 14, 2018

Is History Repeating Itself In Oil Markets?

Back in 2014, U.S. shale production was growing so fast that it ended up crashing the market. Now, history could be repeating itself.

That was the warning from the International Energy Agency, which said in its latest Oil Market Report that a “second wave” of shale supply threatens another downturn.

Total global oil supply is expected to grow faster than demand this year, which could lead to another downturn. It’s a conclusion that the IEA tried to emphasize in previous reports, but the message finally seems to be sinking in.

The extraordinary run up in benchmark prices in December and January came to a startling end two weeks ago. Part of the reason was because of the broader market turmoil in equities, and part of it was because hedge funds and other money managers had overbought oil futures, exposing the market to a price correction.

But as the IEA notes, the real worry is rising oil supply, which means that “the underlying oil market fundamentals in the early part of 2018 look less supportive for prices.”

It isn’t all bad news for benchmark prices. The IEA noted that due to the OPEC production cuts and strong demand, inventories fell at a remarkable rate last year. The oil inventory surplus currently stands at about 52 million barrels above the five-year average, down sharply from 264 million barrels a year ago. Importantly, while crude oil inventories are closing in on the five-year average, total stocks of gasoline and other refined products have already fallen well below that threshold. “With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand,” the IEA wrote.

(Click to enlarge)

But even as the elusive “balance” in the oil market is within reach, the IEA says things might quickly reverse.

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Oil Prices: Collapse Now, Spike Later

February 12, 2018

Oil Prices: Collapse Now, Spike Later

Oil prices closed out the week sharply down, wiping out all the gains posted since the start of the year.

Surging U.S. shale production, along with broader financial turmoil, has clearly put an end to the bullish mood in the oil market. U.S. shale struck several blows against oil prices this week.

First, the EIA dramatically overhauled its forecasts, predicting U.S. oil production would hit 11 million barrels per day (mb/d) this year, rather than late next year. Then, on Wednesday, it revealed estimates that put U.S. oil production at 10.25 mb/d for the week ending on February 2, a staggering 330,000 bpd increase from a week earlier. Those weekly estimates are subject to revision when more data becomes available, but if those figures hold, it would point to a significant ramp up in drilling activity and new supply coming online.

As a result, it seems that, in the short run at least, U.S. shale has killed off the oil price rally, which saw WTI move from $50 per barrel in October to the mid-$60s per barrel by January. Brent saw a similar jump from the mid-$50s to $70.

But we’re now potentially moving into the next phase of this cycle, an all-too-familiar correction after prices have seemingly climbed too far.

This time around the downward swing could be aided by a rebound in the strength of the dollar. Typically, a weakening dollar pushes up oil prices, and the rapid run up in prices over the last few months occurred not coincidentally at a time when the dollar posted a steep decline. But the greenback has clawed back gains, particularly over the last week, with expectations of rising interest rates.

“The dollar index got down to 86 [cents], crude got to $66,” John Kilduff, founding partner of Again Capital, told CNBC.

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WTI Tumbles To $62 Handle After IEA Predicts “Explosive” US Shale Production As Oil Prices Surge

January 19, 2018

WTI Tumbles To $62 Handle After IEA Predicts “Explosive” US Shale Production As Oil Prices Surge

Update: The IEA report has impact prices – as would be expected – sending WTI back below the crucial support level of $63 once again…

With WTI Futures net long positioning at extreme longs, one wonders if $63 can hold.

* * *

Overnight, the International Energy Agency became the latest entity to recognize that 2018 is shaping up to be a pivotal year for energy production in US shale fields, and a showdown between OPEC and non-OPEC producers, namely those in the US.

According to the latest IEA report, US shale output is poised for “explosive” growth in 2018 as WTI trades at its strongest level since the summer of 2015, which in turn will unleash pent up US output, potentially leading to a sharp oversupply of black gold,

As Bloomberg notes, the IEA’s forecast supports OPEC’s own projections: As we pointed out yesterday, the cartel also expects US production to ramp up in 2018 as shale producers – much more lean and efficient and significantly delevered after the 2015/2016 “episode” – unleash output as oil price continue to rise well above the generally accepted shale breakevens in the low $50s.

The IEA boosted its forecasts for non-OPEC supply growth this year by 100,000 barrels to 1.7 million barrels a day compared with last month’s report, modestly higher than OPEC’s projections. It also warned 2018 could be a “volatile” year as Venezuela’s energy industry teeters on the brink of collapse.

Both OPEC and IEA expect Venezuela’s difficulties to continue after Latin America’s socialist paradise brooked the biggest unplanned production decline of 2017.

“The big 2018 supply story is unfolding fast in the Americas,” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”

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

Is Oil About to Collapse?

December 10, 2017

Is Oil About to Collapse?

US producers simply don’t play along with OPEC and Russia.

By Martin Tiller, Oil & Energy Insider:

WTI really does look like it is about to collapse. Let’s be clear, I am not necessarily talking about a return to the sub-$30 of the beginning of 2016 here, but a return to the more recent lows around $42 before too long is distinctly possible, and if that happens, who knows where we go from there? There are, as I have noted in the past, reasons to believe that the long-term path of oil is still upward, but more immediately there is one dominant factor that keeps adding downward pressure, large and still growing supply from North American shale producers.

Some say, as in this FT piece, that there are signs that U.S. shale production has peaked, but then that was also supposed to be the case in 2015 and 2016. I am sure that if I could bother to go back further I would find that the same thing was said in previous years too. The fact is though, that as the EIA chart below shows, after dropping off as price declined at earlier this year, U.S. crude production is growing again and will be higher this year than last and is expected to be higher again in 2018.

The chart below indicates why American producers are pumping at a growing rate. WTI has been recovering ever since the low of $26.05, and is now at levels not seen since June of 2015.

There are reasons for that recovery, most notably the production cuts agreed by OPEC countries and others including Russia and improving global growth, but those bullish factors are now fully priced in and the effect of that is to encourage U.S. E&P companies to, to borrow a phrase, drill, baby, drill!

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U.S. SHALE OIL PRODUCTION UPDATE: Financial Carnage Continues To Gut Industry

November 15, 2017

U.S. SHALE OIL PRODUCTION UPDATE: Financial Carnage Continues To Gut Industry

As the Mainstream media reports about the next phase of the glorious U.S. Shale Oil Revolution, the financial carnage continues to gut the industry deep down inside the entrails of its horizontal laterals. The stench of fracking fluid must be driving shale oil advocates utterly insane as they are no longer able to see the financial wreckage taking place in these companies quarterly reports.

This weekend, one of my readers sent me the following Bloomberg 45 minute TV special titled, The Next Shale Revolution. If you are in need of a good laugh, I highly recommend watching part of the video. At the beginning of the video, it starts off with President Trump stating that the U.S. has become an energy exporter for the first time ever. Trump goes on to say, “that powered by new innovation and technology, we are now on the cusp of a new energy revolution.” While I have to applaud Trump’s efforts for putting out some positive and reassuring news, I wonder who is providing him with terribly inaccurate energy information.

I would kindly like to remind the reader; the United States is still a NET IMPORTER of oil. We still import nearly six million barrels of oil per day, but we export some finished products and a percentage of our shale oil production. Thus, we still import a net of approximately three million barrels per day of oil.

A few minutes into the Bloomberg video, both Pioneer Resources Chairman, Scott Sheffield, and Continental Resources CEO, Harold Hamm, explain how advanced technology will revolutionize the shale oil industry and bring down costs. I find that statement quite hilarious as Continental Resources and Pioneer continue to spend more money drilling for oil and gas then they make from their operations.

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OPEC Reports 151Kbpd Drop In October Crude Output; Raises Demand Forecast For 2018

November 13, 2017

OPEC Reports 151Kbpd Drop In October Crude Output; Raises Demand Forecast For 2018

True to its perpetually optimistic form, OPEC, which only last week for the first time conceded the threat posed by rising US shale production…

… sharply raised its demand forecast for cartel oil in 2018, ahead of a key meeting of the group’s ministers later this month. According to OPEC’s monthly market report, the oil exporters said the forecast demand for its oil next year had been increased by around 400,000 barrels a day from the previous month to 33.4mmbpd, about 0.46mmbpd higher than in 2017. Overall, the cartel now expects global demand growth to rise by 1.53 million barrels a day in 2017 – an upward revision of 74kbps from the October report citing better than expected performance from China – and 1.51 million barrels a day in 2018.

The increase comes on the back of the recent global economic strength, which has exceeded many analysts’ expectations, helping to draw down inventories that built up during the crude glut since late 2014. Furthermore, the rise in demand has combined with the 1.8mmbpd in production cuts by OPEC and non-OPEC nations since January of this year to help tighten the market, pushing the price of Brent back above $60 a barrel for the first time in two years.

As the FT adds, cartel analysts said demand for Opec crude is expected to reach 34m b/d in the second half of next year, roughly 1.4mmbpd above what they pumped last month, according to secondary sources. As usual, oil demand is contingent not only on overall confidence (i.e. the stock market), but also whether the global economy is expanding or contracting, which all boils down to whether China is creating lots of new debt each month.

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

Rig Count Drops Most In 7 Months As ‘Traders’ Panic-Buy Crude Futures

August 18, 2017

Rig Count Drops Most In 7 Months As ‘Traders’ Panic-Buy Crude Futures

The US oil rig count dropped 5 to 763 last week, the biggest drop in 7 months. However, crude production from the Lower 48 has surged (rising the most since June last week) to the highest since July 2015. Even with today’s sheer farce panic-buying squeze higher in WTI crude, oil looks set for its 3rd weekly close lower as BNP notes the “whole supply surplus story is not likely to go away anytime soon.”

*U.S. OIL RIG COUNT DOWN 5 TO 763 , BAKER HUGHES SAYS :BHGE US
*U.S. GAS RIG COUNT UP 1 TO 182 , BAKER HUGHES SAYS :BHGE US

As we have noted previously, this inflection point in the rig count fits with the rolover in crude prices…

While the rig count growth has stabilized, crude production continues to rise in the Lower 48 (though had dropped in Alaska for 3 straight weeks) but both saw a rise this week (total production up 79k) as Lower 48 production hit its highest since July 2015…

Bloomberg notes that U.S. oil production from major shale plays is set to hit another record at 6.15 million barrels a day next month, according to the EIA. It’s not just the Permian that’s growing, as the agency sees higher output across the board.

WTI Crude remains lower on the week despite the panic-buying… with no catalyst at all except bannon momentum ignition in USDJPY.

Soime chatter on the crude curve – “Flat price is finally catching up with some of the signs we’ve seen that the physical market is tightening,” Clayton Rogers, an energy derivative broker at SCS Commodities, says.

Production, Rig Count Surge As Exxon Bets Big On U.S. Shale

March 3, 2017

Production, Rig Count Surge As Exxon Bets Big On U.S. Shale

US oil rig counts rose for the7th straight week (up 7 to 609) to the highest level since October 2015.

With production surging back above 9mm b/d – the highest in a year – the trend in the rig count implies considerably more production to come…

And it’s all in the Permian…

And with rig counts rising (in the Permian), production shows no signs of slowing, as OilPrice.com’s Nick Cunningham notes, ExxonMobil’s new CEO Darren Woods announced a dramatic shift towards shale drilling this week, a new strategy that will prioritize drilling thousands of smaller wells while reducing spending on the massive projects that the oil major has long been accustomed to pursuing.

Mr. Woods gave a presentation to investors on March 1, selling his vision after recently taking over from Rex Tillerson, who left to become U.S. Secretary of State. Exxon will now ramp up spending on shale drilling, after watching dozens of smaller companies profit from the surge in production in Texas, North Dakota and elsewhere over the past decade.

Exxon will dedicate a quarter of its 2017 spending budget on shale, putting $5.5 billion into the effort. “More than one quarter of the planned spending this year will be made in high-value, short-cycle opportunities, including in the Permian and Bakken basins,” Exxon wrote in a March 1 statement. The oil major says that it has 5,500 wells in its queue for drilling in the Permian and the Bakken shales, each with a return of 10 percent or more at $40 per barrel.

Exxon was able to build up this inventory of shale wells with the $6.6 billion it spent in January to double its Permian acreage.

The shift towards shale should pay off over time, with a portfolio of thousands of tiny shale wells making up a growing share of the oil major’s production portfolio.

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

US Shale Production To Soar By 3.5 Million Barrels/Day Over Next Five Years: BofA Explains Why

February 20, 2017

US Shale Production To Soar By 3.5 Million Barrels/Day Over Next Five Years: BofA Explains Why

Two years ago, when Saudi Arabia launched on an unprecedented campaign to crush high-cost oil producers, in the process effectively putting an end to the OPEC cartel (at least until last year’s attempt to cut production), it made a bold bet that US shale producers would be swept under when the price of oil tumbled, leading to a tsunami of bankruptcies, as well as investment and production halts. To an extent it succeeded, but where it may have made a glaring error is the core assumption about shale breakeven costs, which as we reported throughout 2016, were substantially lower than consensus estimated.

In his latest note, BofA’s Francisco Blanch explains not only why a drop in shale breakevens costs is what is currently the biggest wildcard in the global race to reach production “equilibrium”, but also why US shale oil production could surge in the coming years, prompting OPEC to boost production in hopes of recapturing market share. Specifically, Blanch predicts that US shale oil production could grow by a whopping 3.5 million barrels per day over the next five years.

Here’s why: as he explains “many oil companies around the world have survived the price meltdown by bringing down breakeven costs in the last two years.

But what parts of the world can grow output in the years ahead? In BofA’s view, US shale oil producers will come out ahead and deliver outsized market share gains by 2022. Shale oil output in the US may grow sequentially by 600 thousand b/d from 4Q16 to 4Q17 on increased activity in oil rigs and fast productivity gains. Importantly, breakeven costs for key major US plays now stand around the $55/bbl mark.

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

US shale oil too expensive, peaks 1H 2015

September 30, 2015

US shale oil too expensive, peaks 1H 2015

According to EIA data, monthly US crude oil production peaked in April 2015 at 9.6 mb/d.

Fig 1: US crude oil production to June 2015

http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm

The above graph shows that US crude production increased by around 4 mb/d between mid 2011 and mid 2015, mostly from shale oil which took off – with a delay – when oil prices exceeded US$ 80-90. That stellar growth has come to an end, also with a delay, after oil prices plummeted.

Let’s zoom into the period starting with January 2014:

Fig 2: US incremental crude production Jan 2014 – Jun 2015

The April 2015 peak was caused by higher GOM production resulting from production start-ups after lifting the drilling moratorium in 2010. Shale oil peaked one month earlier, after the winter drop. However, month by month production can change and future revisions of data are likely due to reporting delays. What is more important than the month of peaking is the fact that US oil production stopped growing.

(Note: Incremental production is calculated as production minus the minimum production in the period under consideration. The sum of the minimum production is the base production)

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

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