The rate of oil production decline in the United States will accelerate in the 3rd quarter. It has already started.
Per the EIA: In the last six weeks:
> U.S. oil production has declined 222,000 barrels per day.
> U.S. oil imports have increased by 512,000 barrels per day.
Crude oil in U.S. storage facilities has declined 10 of the last 11 weeks, despite the sharp increase in imports.
(Click to enlarge)
"The decline curve never sleeps, and always wins." - David Demshur, Core Labs CEO in their 2nd quarter conference call. "The inevitability of the decline curve guarantees that oil production will slow and the market will find a balance." Coupled with declining production, we live in a world where demand for oil increases "relentlessly" by 1.0 to 1.5 million barrels per day year after year after year.
From Core Lab's Q2 press release:
The Company continues to anticipate a "V-shaped" worldwide commodity recovery beginning in the second half of 2016. One indication is that several U.S.-based operators have recently announced rig additions. Further, global demand for hydrocarbon-based energy continues to increase, while worldwide crude oil supply peaked in the second half of 2015 and began a decline that Core believes will continue through all of 2016 and 2017. The Company has observed that U.S. onshore oil production peaked in March 2015 and has fallen since then by an estimated 1,000,000 barrels of oil per day ("BOPD"), some of which was offset by new additions to production in the Gulf of Mexico ("GOM") as eight deepwater legacy-field developments came on-line in late 2015.
At current activity levels, Core predicts 2016 U.S. onshore oil production will fall approximately 1,100,000 BOPD and will be somewhat offset by deepwater GOM gains of approximately 160,000 BOPD, yielding a U.S. net decline of 940,000 BOPD resulting in a net decline curve rate of approximately 10.1%.
Based on currently available worldwide crude oil production data, coupled with internal Core Lab data, Core estimates that the net worldwide annual crude oil production decline rate is approximately 3.3%. That is supported by recent International Energy Agency ("IEA") reports that worldwide crude oil production continued to fall through the second quarter of 2016. In addition to (declining production in) the U.S., Core expects 2016 production declines in Angola, China, Colombia, Indonesia, Iraq, Mexico, Nigeria, and Venezuela, among others. Related: Is This The Next Big Headache For Oil Prices?
On the company's conference call they said their forecast of a 1.1 MMBOPD decline for the U.S. may be too conservative and if forced to bet, they would take the "over".
The net worldwide decline rate is predicated on sharper decline curve rates for tight-oil reservoirs and the significant reduction of maintenance capital expenditures for the existing crude oil production base. These factors, together with the continuing decline in global production, the accelerated decline in inventories, and the continuing increase in global energy consumption, should create a tight crude oil supply market for the second half of 2016, and result in increased crude prices and industry activity levels worldwide.
Core Laboratories (NYSE: CLB) has offices all over the world and they know what is really happening in all of the world's significant producing basins.
U.S. oil production peaked at over 9.6 million barrels per day in June, 2015: Based on Core Labs' prediction above, U.S. oil production will fall to under 8.3 million barrels per day before the end of this year and will continue fall to under 7.5 million barrels per day sometime in 2017 before it stabilizes. The only thing that will stop U.S. oil production from falling is a sharp increase in oil prices. In my opinion, West Texas Intermediate (WTI) must move firmly over $60/bbl before we will see the increase in capital expenditures necessary to stabilize U.S. oil production.
In my opinion, the only reason for the recent pull back in oil prices is the FEAR that has been created by the Brexit vote.
By Daniel Steffens for Oilprice.com
More Top Reads From Oilprice.com:
Dan Steffens is the President of Energy Prospectus Group (EPG), a networking organization based in Houston, Texas. He is a 1976 graduate of Tulsa University… More
Comments
Don't be misled by seasonal trends. Stocks need to fall year over year before this market is truly balanced.
I also wonder how much oil prices can be manipulated through suspect stories?
Makes no sense. Also, there is a new revival in vapor fuel technology where in 1970 Shell Oil built a car that ran 300 or more miles on a gallon of gasoline vapor. There is a growing list of vehicles that are now running on back yard technology getting very high mileage. Google fuel vapor technology.
Why the EPA and government refuses to endorse this tech is all because of big $ influence and the possible reduction of fuel tax revenue. This is why this global warming crud is just that. If the EPA really wanted to reduce carbon emissions they would study the very old but new fuel vapor system.
Right now Americans have finally received a pay increase from the outrageous $3.60 a gallon we were paying a short time ago. We were all told that it was the price of crude. We began producing on US soil and the false prices began to drop. There are literally millions of oil bearing soil in America that is being denied American citizens and oil production still that can further stabilize fuel costs here.
The days of > $75 barrels of oil are over for good except for the inevitable inflation, the US Government does something really stupid, or there is a World War III
We are currently in a period of price stability which will enable all stakeholders to budget accordingly
Using US storage as an indicator for global supply-demand balance makes no sense.
2) countries that need the to export more to support their currencies - oil producing nations
Saudi, Brazil, Nigeria, Angola, Iran, inventories are coming down pretty fast. Their inventories are lower by 50 MMbd May15- May16.
If you compare global yoy ending stocks. They built up till Feb16. Then the drawdown began pretty fast.
Good luck hoping for steady oil for the next 20 years!
http://www.reuters.com/article/us-global-oil-idUSKCN0YH01R
http://www.cnbc.com/2016/06/22/oil-analysts-agree-price-will-rise-but-disagree-on-magic-number.html