This is the second in a monthly series of posts chronicling the action in the global oil market in 12 key charts. The January 2015 post is here. EIA oil price and Baker Hughes rig count charts are updated to end January 2015, the remaining oil production charts are updated to December 2014 using the IEA OMR data. The main oil production changes from November to December are:
- World total liquids up 150,000 bpd
- OPEC up 80,000 bpd
- N America up 80,000 bpd
- Russia and FSU up 180,000 bpd
- Europe down 70,000 bpd (compared with December 2013)
- Asia down 60,000 bpd
1. The continued growth in production into December shows that global production growth had significant momentum that has not yet been curtailed by the price rout.
2. The fall in the oil price continued throughout January, WTI hitting a low of $44.80 on January 26th and Brent hitting a low of $45.13 on January 13th.
3. The main dynamic statistic has been the plunge in US oil rig count down to 1223 rigs on January 30th from a recent high of 1609 rigs on October 10th 2014.
4. The rig count news led to a strong rally in oil price on 30th January.
5. I anticipate that the price rout is not yet over and it will require significant falls in production to take root before a real price recovery gets underway.
Figure 1 Daily Brent and WTI prices from the EIA, updated to 26 January 2015. The plunge continues at a similar speed to the 2008 crash. The 2008 oil price crash began in early July. It was not until 16th September, about 10 weeks later, that the markets crashed. The recent highs in the oil price were in mid-July but it was not until WTI broke through $80 at the end of October that the industry became alert to the impending price crisis. As I write, WTI is trading at $48 and Brent on $53 having staged a major recovery on the afternoon of 30th January on news of plummeting US drilling (Figure 2).
Figure 2 Oil and gas rig count for the USA, data from Baker Hughes up to 30 January 2015. The recent top in operating oil rigs was 1609 rigs on 10 October 2014. On January 30th the count was down 386 to 1223 units. The oil rig count is down 259 for the month of January. News of the plummeting US rig count led to a strong rally in oil price. However, the drilling slowdown has yet to show up significantly in US oil production statistics (Figure 3). Gas drilling has not yet been affected with about 320 units operational. It seems likely that this is the number of gas rigs required to compensate for declines and to maintain US gas production on a plateau.
Figure 3 US oil production stood as 12.36 Mbpd in December, down 60,000 bpd from November. This is still within the margin of error and revisions and it is too early to call a top. In September 2008, US production crashed over 1 million bpd to 6.28 Mbpd. That production crash was short lived as shale oil drilling got underway. US oil production has doubled since the September 2008 low. C+C+NGL = crude oil + condensate + natural gas liquids.
Figure 4 Only Saudi Arabia has significant spare production capacity that stood at 2.78 Mbpd in December 2014. Total OPEC spare capacity was 3.99 Mbd in December, up 130,000 bpd on November. While spare capacity may appear to be showing signs of going up this is mainly down to Libya where production is once again falling, down 250,000 bpd on the month and that production fall is allocated to Libyan spare capacity.
Figure 5 OPEC production plus spare capacity (from Figure 4) is in grey. The chart conveys what OPEC could produce if all countries pumped flat out and there are signs that OPEC production capacity is descending slowly which casts a different light on the current glut. OPEC countries have skillfully raised and lowered production to compensate for Libya that has come and gone in recent years, and for fluctuations in global supply and demand. But with OPEC production broadly flat for the last three years, all production growth to meet increased demand has come from elsewhere, namely N America. Total OPEC production was 30.48 Mbpd in December up 80,000 bpd on the previous month. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait and shared equally between them.
Figure 6 Relatively small adjustments to Saudi production have maintained order in the oil markets for many years. It is important to understand that the rapid price recovery in 2009 (Figure 1) came about because Saudi Arabia and other OPEC countries made deep production cuts. Saudi production stood at 9.62 Mbpd in December, virtually unchanged from November and total production capacity stood at 12.4 Mbpd. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait and shared equally between them.
Figure 7 Russia remains one of the World’s largest producers with 10.99 Mbpd in December 2014, up 40,000 bpd on November. Other FSU also ticked up 140,000 bpd in December pushing the combined FSU production over 14 Mbpd.
Figure 8 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 December 2013, European production is down 70,000 bpd.
- Norway Dec 2013 = 1.91 Mbpd; Dec 2014 = 1.87 Mbpd; down 40,000 bpd YOY
- UK Dec 2013 = 0.93 Mbpd; Dec 2014 = 0.91 Mbpd; down 20,000 bpd YOY
- Other Dec 2103 = 0.59 Mbpd; Dec 2014 = 0.58 Mbpd; down 10,000 bpd YOY
The steep declines appear to have been arrested and with several new major projects in the pipeline North Sea production was expected to rise in the years ahead. The current price rout is bound to have an adverse impact and activity in the North Sea is winding down rapidly as companies plan major redundancies in the workforce. Related: How The Economy Is Tied To Energy
Figure 9 China is a significant though not huge oil producer and has been producing on a plateau since 2010. Production was 4.15 Mbpd in December down 70,000 bpd from November. This group of S and E Asian producers has been declining slowly since 2010. The group produced 7.57 Mbpd in December, down 60,000 bpd on November.
Figure 10 N American production does not yet show any sign of slowing. But bear in mind that the rig count data is updated to end January while the oil production data is to end December.
- USA November 2014 12.42 Mbpd; December 2014 12.36 Mbpd; down 60,000 bpd
- Canada November 2014 4.20 Mbpd; December 2014 4.35 Mpd; up 150,000 bpd
- Mexico November 2014 2.64 Mbpd; December 2014 2.63 Mbpd; down 10,000 bpd
Group production up 80,000 bpd from November.
Figure 11 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. December production was up 150,000 bpd on November. There is still no sign of the price rout biting into production, but it will definitely come.
Figure 12 To understand this important 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. The December data confirm my earlier inkling that both over supply and weak demand underpin the on-going price rout.
By Euan Mearns
Source - http://euanmearns.com/
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