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U.S. Shale Hurting: Largest Monthly Drop In More Than A Year

Oklahoma Shale Tower

U.S. crude oil production fell 150,000 barrels per day in May and the global over-supply of liquids was 680,000 barrels per day.

The EIA Short-Term Energy Outlook (STEO) posted on June 7 showed that U.S. oil production declined by the greatest monthly amount so far since the peak in April 2015 (Figure 1).

(Click to enlarge)

Figure 1. U.S. crude oil production and forecast, 2015-2016. Source: EIA June STEO and Labyrinth Consulting Services, Inc.

Production has declined 950,000 barrels of oil per day (bopd) from 9.69 million bopd in April 2015 to 8.6 mmbopd last month. EIA forecasts that production will decrease another 650,000 bopd by September for a total decline of 1.6 mmbopd since April 2015.

Declining U.S. production, an outage of 800,000 bopd because of Canadian wildfires, along with outages in Nigeria and Venezuela of perhaps 1 mmbopd are pushing oil prices higher and contributing to falling U.S. crude oil comparative inventories (Figure 2).

(Click to enlarge)

Figure 2. Cushing plus Gulf Coast comparative crude oil inventories. Source: EIA, CME and Labyrinth Consulting Services, Inc.

Comparative inventories are the most timely and reliable indicators of oil-price change. Figure 2 shows that comparative inventories fell sharply before the March-August and August-October 2015 oil-price rallies, and also fell along with the present price rally that began in March 2016. WTI futures are trading above $51 per barrel today. Related: Oil Holds Steady As EIA Confirms 3.2M Barrel Draw

The June STEO also shows that the global liquids over-supply for May was essentially flat with April at 680,000 bpd (Figure 3).

(Click to enlarge)

Figure 3. EIA world liquids market balance (supply minus consumption). Source: EIA June STEO and Labyrinth Consulting Services, Inc.

Supply fell 410,000 bpd and consumption fell 470,000 bpd–consumption typically falls in the second quarter before increasing in June or July as northern hemisphere seasonal usage peaks. World market balance (supply minus consumption) has been improving since late 2015 and early 2016. This is partly because of outages also.

I expect U.S. production and world market balance trends to continue to favor stronger crude oil prices although it is likely that the same cyclicity that has characterized prices since the price collapse in late 2014 will continue.

By Art Berman for Oilprice.com

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  • Mitchell Sheppard on June 08 2016 said:
    I expect U.S. production and world market balance trends to continue to favor stronger crude oil prices although it is likely that the same cyclicity that has characterized prices since the price collapse in late 2014 will continue.
    So the whole article was BS
  • michael on June 08 2016 said:
    Hi Art -

    Thanks for another great article, and answering a previous question of mine from a previous article.

    In regards to your current article, I am a little confused regarding supply of oil. At $50 plus, we seem to be adding rigs, hence oil supply - we added 9 rigs last week. Is it possible the EIA is underestimating the domestic oil market to bring on ample supply at $50?

    It seems like $50 is an area that Saudi Arabia and Opec should be afraid of.
  • michael on June 09 2016 said:
    Hi Art -

    A follow up question.

    How much of your analysis includes what is coming with technologies for vehicles. Chevrolet has the new Bolt coming this fall which supposedly will be over 200 miles a charge - but that might be an inflated claim. Toyota has the Mirai fuel cell that can be recharged in 5 minutes and give a 300 mile range.

    To me, when you enter the consistent 125-150 mile per charge range - that is where I think people start converting to electric/fuel cell.

    Part of the problem with batteries has been inflated claims/batteries that lose their ability to keep a standard charge.

    What are your thoughts on this?
  • RussianJew on June 09 2016 said:
    US shale oil is acting in typical Russian style: it's dying but not surrending! LOL
  • Mac on June 09 2016 said:
    The Canadian fire took 800,000 barrels a day off the market. Do you think that is exaggerated? If that is true, why have the stocks of crude oil in the United States not fallen faster? I was thinking the United States would have seen draws of 5.6 million barrels a week for several weeks. Any thoughts?
  • Amtet on June 10 2016 said:
    Art, Two questions:

    (1) Developing countries consume over half of global crude and data from these countries tends to be late and perhaps inaccurate so how do you evaluate global supply vs consumption?

    (2) Since the US is a massive importer of oil and a tanker more or less effects US storage, why are US storage levels considered an indicator of US supply vs consumption??

  • Brad Beago on June 10 2016 said:
    Art, thanks...I think the headline is misleading.

    To Michael, global car sales this year are expected to exceed 74 million units. Many are additive, not replacement. Electric cars are not even a rounding error. Take a look at China And India refined product demand numbers.

    To Russian Jew: The death of the shale business is greatly exaggerated. This is the first act of an important source of hydrocarbons for at least the next 30 years. Over the next 24 months, we'll see the rig count climb and service activity accelerate dramatically onshore U.S. No Question. As long as global crude oil demand grows, shale will have a place. The pace of shale development will accelerate and deccelerate based on company cash flow and oil price expectations.

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