U.S. Crude to Decline to ~8.2 MMBbl/d in 2017; Steep Drop from Record ~9.7 MMBbl/d in April 2014

U.S. Crude to Decline to ~8.2 MMBbl/d in 2017; Steep Drop from Record ~9.7 MMBbl/d in April 2014

11th March 2016

The onshore rig count continued to decline this week, down 13 (3%), despite WTI trending higher and Brent trading above US$40 per barrel for the first time this year.  In the three key oil basins (Eagle Ford, Permian, and Williston) the decline was 10 oil rigs (a 4.2% decline).

According to the EIA, U.S. crude oil production is expected to fall to its lowest level since 2013 as battered shale drillers idle yet more rigs and defer well completions to conserve cash.  Production averaged an estimated 9.4 million barrels per day in 2015, and is forecast by the EIA to average 8.7 million barrels per day in 2016 and 8.2 million barrels per day in 2017.

U.S. oil production has generally declined month to month since reaching a 44 year peak of ~9.7 million barrels per day in April 2014.  Most of the decline in oil production has occurred in light tight oil (LTO) formations located in North Dakota, Texas, and New Mexico.

This week, the U.S. government updated its short term energy outlook (STEO).  It now expects U.S. crude oil production to fall next year by more than double what it predicted just a month ago.

In the EIA’s March 2016 STEO update, 2017 oil production is expected to fall by 480,000 barrels per day to ~8.2 million barrels per day.  This reduction is in line with GCA’s December 2015 forecast.  In last month’s EIA STEO, 2017 oil production was expected to fall by 230,000 barrels per day to ~8.5 million barrels per day.

Sources: EIA Weekly Update; GCA Analysis and December 2015 Forecast

The EIA indicated in its monthly drilling productivity report for March that U.S. LTO production in April is forecast to have its second largest monthly decline on record (106,000 barrels per day), and the sixth straight monthly decrease.  This is yet another sign that the 19 month price rout is taking a deep toll on LTO drillers and pushing out high-cost producers.

Weekly Recaps

Drilling Activity

The total number of active onshore rigs now stands at 453, down 1,423 (~76%) from a November 2014 high of 1,876.  Across the three major unconventional basins, the oil rig total declined to 219 (down 10 last week), with Eagle Ford down 3, Williston down 1, and Permian down 6.  The horizontal rig count is now 375, down 14 last week.

Total U.S. rig count (including the Gulf of Mexico) stands at 480, down 9 last week, with rigs targeting oil down 6 for a 28-week total decline of 287.  The average weekly decline rate now stands at ~10.25 rigs per week.

Oil Price

The IEA said in a monthly report that oil might have bottomed and that low prices were beginning to impact crude output outside producer organization OPEC.  "There are clear signs that market forces ... are working their magic and higher-cost producers are cutting output" the Paris-based IEA said.

Brent, the global benchmark for oil, was up US$2.23 to US$40.39 a barrel, reflecting an increase of 6% on the week.

WTI crude rose US$3.09 to US$38.54 a barrel, up 9% on the week. 

U.S. Supply and Demand

U.S. crude oil refinery inputs remained steady this week, with an average of 15.9 million barrels per day and refineries at 89.1% of their operating capacity.

On the supply side, EIA data indicated that U.S. oil production in the Lower 48 was mostly flat, with total production at 8.571 million barrels per day.  The total decline over the past four weeks stands at 135,000 barrels per day (an average of 34,000 barrels per week).  The data continue to confirm that U.S. LTO supply is diminishing.

U.S. crude imports averaged 8 million barrels per day last week, a decrease of 244,000 barrels per day from the previous week.  Over the last four weeks, crude oil imports averaged 8 million barrels per day, ~12% above the same four-week period last year.

Crude oil inventories increased ~3.9 million barrels from the previous week.  Crude in storage at Cushing (the main price point for WTI) increased 0.6 million barrels, taking the total crude in storage to 66.9 million barrels (~92% utilization).

Sources: EIA Weekly Update and GCA Analysis

Authors

U.S. Crude to Decline to ~8.2 MMBbl/d in 2017; Steep Drop from Record ~9.7 MMBbl/d in April 2014

P Kevin Galvin

Principal Advisor, Field Development Planning - kevin.galvin@gaffney-cline.com
U.S. Crude to Decline to ~8.2 MMBbl/d in 2017; Steep Drop from Record ~9.7 MMBbl/d in April 2014

Jeanne-Mey Sun

Vice President and Global Head of Business Consulting - Jeanne-Mey.Sun@gaffney-cline.com
U.S. Crude to Decline to ~8.2 MMBbl/d in 2017; Steep Drop from Record ~9.7 MMBbl/d in April 2014

Bob George

Regional Director: Americas - bob.george@gaffney-cline.com

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