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Is Canadian Oil Actually Subsidized?

Is Canadian Oil Actually Subsidized?

Ending fossil fuel subsidies was…

Global Oil Production Up One Million bpd In March

The main oil production changes from February to March are:

  • World total liquids up 1,000,000 bpd
  • OPEC up 890,000 bpd
  • N America up 80,000 bpd
  • Russia and FSU up 40,000 bpd
  • UK and Norway down 50,000 bpd (compared with March 2014)
  • Asia up 60,000 bpd
  1. Global oil production rose sharply in March by 1 Mbpd and we have a new peak in global total liquids production of 95.24Mbpd. But with the oil price currently resilient, it seems likely that surge in production may have reversed.
  2. The plunge in US oil rig count has resumed. Oil plus gas rig count stood at 905 on May 1, just above the low point reached in the post financial crash period.
  3. I anticipate that the price bottom may be in but that price will bounce sideways along bottom for several months until we see significant falls in OECD production. There is, as yet, little sign of a significant drop in US production.
  4. The current action appears to be demand driven, with the low price raising demand more than it is suppressing supplies.

DailyEIAOilPrices

Figure 1 Daily Brent and WTI prices from the EIA, updated to 27 April 2015. It is difficult to see the detail of recent action at this scale, so an expanded X-axis chart is given below the fold.

This is the May 2015 edition of Oil Production Vital Statistics. The April 2015 Vital Statistics is here. EIA oil price and Baker Hughes rig count charts are updated to end April 2015, the remaining oil production charts are updated to March 2015 using the IEA OMR data.

DailyOilPriceChart2

Figure 2 On 13th / 28th January Brent and WTI reached respective lows and the WTI-Brent spread closed completely. WTI fell to test its Jan 28th low of $44.08 on 16th / 17th March. Since then both WTI and Brent have staged a modest recovery. The differential price action continues to reflect gross over supply of LTO (light tight oil) in the USA. With global and US oil production hitting new highs (Figs 14 and 5) the oversupply situation has not yet begun to unwind. I do not expect to see a major price rally until US oil production begins to follow the rig count down.

USARigCount

Figure 3 Oil and gas rig count for the USA, data from Baker Hughes up to 1 May 2015. The recent top in operating oil rigs was 1609 rigs on 10 October 2014. On March 27th the count was down to 679 units, a fall of 58%. The oil rig count is down 134 for the month of April. The decline in drilling activity has yet to show up in US oil production statistics (Figure 5). A backlog of wells already drilled are being fracked and hooked up. Gas rigs are down 11 for the month of April and the decline seems to be plateauing (Figure 4). Following the finance crash, the low point for total rigs was 876 hit on June 12th, 2009. The total rig count now stands at 905.

USARigCount2

Figure 4 Detail of the US rig count statistics showing that the decline in oil rig count is slowing but is quite definitely still down. The gas rig count appears to have stabilized.

Related: Key Signals That Oil Prices Are On The Up

USAC+C+NGLProduction

Figure 5 US oil production stood as 12.73 Mbpd in March 2015, up 80,000 bpd from the prior month. There is no real sign of US oil production slowing. C+C+NGL = crude oil + condensate + natural gas liquids.

OPEC12SpareCrudeCapacity

Figure 6 Difficult to see on this chart, but the IEA have cut estimates of OPEC spare capacity in most countries effectively to zero. Excluding Saudi and Iran, spare capacity stands at 440,000 bpd. The IEA has increased Iranian spare capacity dramatically from 60,000 bpd to 810,000 bpd in anticipation of sanctions being lifted.

OPECProductionPlusSpareCapacity

Figure 7 OPEC production plus spare capacity in grey. The chart conveys what OPEC could produce if all countries pumped flat out. OPEC production stood at 31.02 Mbpd in March, up 890,000 bpd on February! This is an increasingly clear signal of OPEC intent. However, since most countries are now pumping flat out, they will not be able to prevent prices rising sharply when that time comes. Libyan production recovered a little in March.

SaudiProduction

Figure 8 Saudi production rose 390,000 bpd to 10.1 Mbpd in March. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait and shared equally between them.

Related: A Point To Consider Before Lifting The US Oil Export Ban

MiddleEastOPECRigCount

Figure 9 Middle East OPEC oil rig count from Baker Hughes. While US drilling remains in free fall, OPEC continue to increase their rig count, reflected in the increased production in March.

RussiaFSUProduction

Figure 10 Russia and other FSU oil production remains rock steady. Russia is one of the World’s largest producers with 11.04 Mbpd in March 2014, up 40,000 bpd on February. Other FSU was unchanged at 3.01 Mbpd.

EuropeC+C+NGLProduction

Figure 11 The cycles in European production data are down to summer maintenance programs in the offshore North Sea province. To get an idea of trend it is necessary to compare production with the same month a year ago. Compared with March 2014, UK+Norway production is down 50,000 bpd.

  • Norway Mar 2014 = 1.95 Mbpd; Mar 2015 = 1.94 Mbpd; down 10,000 bpd YOY
  • UK Mar 2014 = 0.96 Mbpd; Mar 2015 = 0.92 Mbpd; down 40,000 bpd YOY
  • Other Mar 2014 = 0.58 Mbpd; Mar 2015 = 0.59 Mbpd; up 10,000 bpd YOY

There are signs that the low oil price and sharp slowdown in North Sea activity may now be impacting production levels.

SouthAndEastAsia

Figure 12 Chinese production was 4.14 Mbpd in March down 20,000 bpd from February. This group of S and E Asian producers have been declining slowly since 2010. The group produced 7.74 Mbpd in March, up 60,000 bpd on February.

Related: How Shale Is Becoming The .COM Bubble Of The 21st Century

NAmericanProduction

Figure 13 N American production continues to rise despite plummeting rig count.

  • USA February 2015 12.61 Mbpd; March 2015 12.73 Mbpd; up 120,000 bpd
  • Canada February 2015 4.33 Mbpd; March 2015 4.32 Mpd; down 10,000 bpd
  • Mexico February 2015 2.71 Mbpd; March 2015 2.68 Mbpd; down 30,000 bpd

Group production up 80,000 bpd from January.

TotalLiquids

Figure 14 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. March production was a mighty 95.24 Mbpd up 1,000,000 bpd on February. The oil price will unlikely begin to stage a proper recovery until production drops well below the trend line. It is currently heading in the wrong direction for those in need of higher price. But the data do suggest a global economy hungry for cheap oil.

TotalLiquidsProductionVPrice

Figure 15 To understand this chart you need to read my earlier posts [1, 2]. The data are a time series and the pattern describes production capacity, demand and price. This chart pattern is not behaving as I anticipated thus far. It was expected that production should fall in response to low price. But instead it has risen and the chart is currently demand driven. Gravity must surely catch up with US production some time. At time of writing, Brent was trading at $66.46.

Discussion

While the data do not move much from month to month there were some surprises in March, global production up 1 Mbpd being one of them. But OPEC are soon at the end of their capability to keep prices down and I suspect when the price bounce comes it may be vigorous, caused by the US dipping deeper into the global market.

Demand for cheap oil is rising and this must at some point meet falling supply that will send price back up towards $100, but perhaps not until early 2016.

References

[1] Energy Matters The 2014 Oil Price Crash Explained
[2] Energy Matters Oil Price Scenarios for 2015 and 2016

By Euan Mearns

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