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Oil Price And Its Effect On Production

Oil Price And Its Effect On Production

The JODI Oil World Database came out a few days ago. The data is through December 2015. The JODI C+C production numbers differs somewhat from the EIA numbers. The JODI OPEC numbers are crude. Also there are a few very small producers that do not report to JODI so their numbers will be slightly less than the EIA but otherwise are pretty accurate.

Also, JODI, for some reason, does not count all of Canada’s oil sands production, and so of for Canada I used Canada’s National Energy Board numbers instead.

The JODI C+C numbers, for Non-OPEC, will average about 2.4 million barrels per day less than the EIA. This is largely due to some countries not reporting to JODI. But these countries only have small changes in their overall production so would have little effect on any of my charts or calculations.

According to JODI, world crude oil production peaked, so far, in July and has declined by 339,000 barrels per day.

The recent price collapse has had a greater effect on Non-OPEC production than OPEC production. Non-OPEC production peaked, so far, in December 2014 and in December 2015 stood at 650,000 bpd below that peak.

No discussion of Non-OPEC production would be complete without Russia, Non-OPEC’s largest producer. I would never claim, just by looking at the chart, that Russia is peaking, or has peaked. But there have been reports coming out of Russia for over two years now that Russia is peaking. Some of those reports, like the Global and Russian Energy Outlook to 2040, have been reported on this site. I think the charts lend strong credence to those reports.

Note: Russian data, prior to 2012, is from the EIA. Beginning January 2012, JODI changed its Russian reporting methods but did not change its historical data, showing a huge decline in production beginning in 2012. So for more accurate historical data prior to 2012, EIA data is used.

But, by far the largest gains in Non-OPEC production has come from the U.S. and Canada. Related: Is This The Most Bullish News For Oil Since 2014?

Notice how close a chart of U.S. and Canadian production resembles a chart of Non-OPEC production itself. In fact….

(Click to enlarge)

I think this chart is amazing. Non-OPEC, left axis and US + Canada, right axis. There is 31,000 bpd difference in the scale but the difference in the scale lines for both axis is exactly the same, 1,000 bpd per line. From January 2005 until December 2015, all Non-OPEC was up 5,144,000 barrels per day. During that same period U.S. + Canada was up 5,222,000 bpd, meaning during that 11 year period, Non-OPEC less U.S. and Canada, actually declined 78,000 bpd.

That number, -78,000 bpd, is even more remarkable due to the fact that this includes Russia, who’s production during those 11 years was up 1,192,000 barrels per day.

Here is a chart of Non-OPEC less US and Canada. Notice that the first point on the chart, January 2005, sits right on the 31,000,000 bpd line and ends up, on December 2015, at just below that point.

Non-OPEC less US and Canada peaked in January 2011 and in December 2015 had declined almost exactly 1.5 million barrels per day from that point. Related: Oil Prices Rally After Renewed Rumors Of Cuts

Non-OPEC production did not drop because of the price, it dropped despite the fact that world oil prices averaged $105 per barrel for most of that period. That is not to say that the price of oil played no part in production levels during that time. They almost certainly did. It is likely that production would have fallen much further had not oil prices been so high.

There is no question that Non-OPEC, less U.S. and Canada, peaked in January 2011. Rising prices brought with it rising production. Production, during that six year period from January 2005 to January 2011 rose just under 1.5 million barrels per day among Non-OPEC nations less US and Canada. And just where did that increase come from?

The two charts below show production change. Countries with little or no change are not shown.

(Click to enlarge)

During that six year period Non-OPEC production increase came primarily from Russia, Oman, China, Brazil, Azerbaijan and Canada. The U.S. was just one of the also rans during this period. The big declines in Non-OPEC production, during this period, came primarily from the North Sea and Mexico. Related: Oil Up On OPEC Rumors, U.S. Shale Shutdowns

(Click to enlarge)

The above chart shows what happened to Non-OPEC production during the longest period of very high oil prices in history.

This chart shows the change from the peak in January 2011 to December 2015 of Non-OPEC countries less U.S. and Canada. Notice the minor roles Russia, Brazil, Colombia, Oman and China played in the last five years. Their increase in production is outweighed by those on the declining side of production.

$105 oil was not able to sustain their growth but it was, very likely, able to slow the decline of some of those nations.

Conclusion

Non-OPEC oil production, less U.S. and Canada, will continue to decline. That decline will now be accelerated due to cancelled projects brought on by very low oil prices. The oil production from US and Canada will also now begin to decline. The decline from Canada will be slight, if any, but there will definitely be much slower growth in Canadian oil production. The decline U.S. crude oil production will be significant.

The decline in total Non-OPEC crude plus condensate production, that begun in mid-2015, will continue at a slightly accelerated pace. Prices high enough to make a significant difference will not likely return until at least mid-2017. Then, beginning in 2018, growth in US production will likely return but at a much slower rate than in previous years.

OPEC is a different story. Iran will, very likely, increase production by about 600,000 barrels per day over the next 12 to 18 months. Iraq may increase production slightly but not nearly as much as Iran. And any increase in Iraqi production will be erratic, due in part to the strong potential for political disruption. The rest of OPEC will show a decline in crude oil production. And any total increase in OPEC production will not be nearly enough to offset the decline in Non-OPEC production.

2015 will be the year world production of crude oil peaked. The return of higher oil prices, whether later this year or further in the future, will not bring production back to the 2015 level.

By Ron Patterson

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  • cdidd on February 28 2016 said:
    love how you grouped canada and usa together im sure canada was much flatter then the rise of the usa.

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