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Page added on March 1, 2016
Falling U.S. Oil Production Reduces Global Supply
High oil price volatility signals that the market has not yet decided the future direction of the oil price. Global production was marginally lower in January, but outside of the U.S., oil production remains robust with rises registered in most producing areas. Production in Iran has begun to rise with 80,000 bpd added in January. U.S. and global rig counts are in steep decline while drilling in the Middle East remains close to all-time highs.
The following totals compare Jan 2016 with December 2015:
– World total liquids down 230,000 bpd
– U.S. down 170,000 bpd
– North America down 180,000 bpd (includes U.S.)
– OPEC up 270,000 bpd
– Saudi Arabia up 70,000 bpd
– Iran up 80,000 bpd
– Russia + FSU up 10,000 bpd
– Europe up 30,000 bpd (YOY)
– Asia down 30,000 bpd
This article first appeared on Energy Matters.
Figure 1 WTI tested the $26.68 low set on Jan 20 by returning to $26.19 on Feb 11. Since then a rally has been staged and the price has moved above the near term downwards trend line. Volatility is high (Figure 3) indicating that the market has not yet decided on future direction.
EIA oil price and Baker Hughes rig count charts are updated to the end of February 2016, the remaining oil production charts are updated to January 2015 using the IEA OMR data.
Figure 2 At this scale, there is as yet little sign of an oil price recovery being staged. The lower dashed line shows the lows reached in 1998 (arrow). On a deflated basis that works out at around $15 in today’s money.
(Click to enlarge)
Figure 3 Volatility is high when the OPV is above 4 as it is at present. High volatility is normally correlated with lows in the oil price and market indecision. See Oil Price Volatility for further explanation.
Figure 4 The U.S. oil and gas rig count continues its steep decline with 400 oil and 102 gas rigs counted on Friday 26 Feb.
Figure 5 The near-term peak in U.S. production was 13.24 Mbpd in April 2015. The January 2016 figure was 12.61 Mbpd, down 630,000 bpd from that peak. The decline from Dec to Jan was 170,000 bpd.
Figure 6 OPEC production has been rock steady for 12 months (dashed line) and currently stands at 31.92 Mbpd, up 270,000 bpd on December. New OPEC member Indonesia is included with Asia (Figure 14).
Related: Bond Markets Losing Faith Even In Large Oil Companies
Figure 7 With the exception of Saudi Arabia and Iran, OPEC spare capacity is now all but zero. Iran has been slowly ramping production (Figure 9) and Iranian spare capacity is now in decline.
Figure 8 In January, Saudi production stood at 10.21 Mbpd, up 70,000 bpd on December. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait where production from the Wafra heavy oil field is now effectively zero.
Figure 9 A new chart for Iran is included to show how Iranian production is now rising as spare capacity falls. In January, Iranian production stood at 2.99 Mbpd, up 80,000 bpd on December.
Figure 10 The ME OPEC oil rig count is on a rising trend with operational cycles superimposed. ME OPEC rig count was down 3 in January, while the trend remains up.
Figure 11 The international oil rig count continues its decline, down 40 in January. I suspect a large number of the rigs counted here as operational are in fact under contract but stacked by clients, who, in the UK at least, have lost their appetite for drilling.
Figure 12 Russia and other FSU produced 14.05 Mbpd in January, up 10,000 bpd on December and little changed for 3 years (dashed line). Close examination shows that Russian production has been rising slowly while other FSU has been falling slowly. Russia has now agreed to not raise production in 2016.
Related: The U.S. Still Dominates World Oil Prices
Figure 13 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. New data and data revisions now show that the North Sea has been turned around with production rising slowly. Several years of $100 oil and record investment has paid off while at the same time contributing to the oil price crash. European production is up 30,000 bpd to 3.49 Mbpd compared with a year ago.
– Norway Jan 2015 = 1.95 Mbpd; Jan 2016 = 1.96 Mbpd; up 10,000 bpd YOY
– UK Jan 2015 = 0.94 Mbpd; Jan 2016 = 1.02 Mbpd; up 80,000 bpd YOY
– Other Jan 2015 = 0.60 Mbpd; Jan 2016 = 0.54 Mbpd; down 60,000 bpd YOY
Figure 14 This group of S and E Asian producers has been trending sideways since 2010. The group produced 7.73 Mbpd in January, down 30,000 bpd. Note that Indonesia (an oil importer) has rejoined OPEC. The OPEC production numbers are reported ex NGL by the IEA and this has meant a 170,000 bpd drop in reported Indonesian production that contributes to the blip down on this chart.
Figure 15 N American production looks like it topped in April 2015 at 20.12 Mbpd. Group production now stands at 19.67 Mbpd down 180,000 bpd on December and down 450,000 bpd from the April 2015 peak.
Figure 16 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. January production was 96.53 Mbpd down 230,000 bpd on the revised December figure and down 550,000 bpd from the July 2015 peak.
Figure 17 Global stock changes reflect the imbalance between supply and demand. Surplus supply grew in 4Q 2015 at a rate of 1.8 mbps. The over-supply situation is likely to persist throughout 2016.
Related: Australia’s $54 Billion Gas Project Starts Shipping
Still High Noon for the Oil Price
No one has ever been able to predict the oil price. The current situation is a balance between quite strong bull and bear signals. Last month I said:
Investors and speculators will expect the $26 lows to be tested. The fundamentals prevailing at that time will be crucial.
This duly happened and support held, but WTI has yet to break free of resistance at around $33 and direction remains undecided.
On the bear side we know that:
– The market will likely remain over-supplied throughout 2016.
– Demand in Q1 and Q2 is cyclically weak.
– Iran returning to full market will pour gasoline on the bonfire.
– There are multiple signs of a slowing global economy, despite cheap energy.
– There’s no sign yet (as of January 2016) of production falling significantly.
On the bull side we know that:
– The oil price will definitely rise from current levels unless the global finance system fails.
– Low price and low investment now, lays the ground for supply shortage in the years ahead.
– Zero spare capacity will prime the market for volatility and price spikes to come.
– The down trend in declining price tops has been broken and there are signs of price support (Figure 1).
– Shale patch bankruptcies appear to be accelerating as is the down turn in non-OPEC drilling
14 Comments on "Falling U.S. Oil Production Reduces Global Supply"
twocats on Tue, 1st Mar 2016 10:28 pm
I despise technical analysis. I can’t believe anyone believes in it. Not that it can’t be a self-fulfilling prophecy, but I think much less so now that the machines are in charge. Machines might manipulate technical analysis to sucker meat-bags, but that’s about it.
here’s an extended art berman and some hedge fund guy talking about oil fundamentals and pricing. It’s definitely one of the better overviews of recent history and potential upcoming events I’ve heard. It includes the Whiting and Continental halts:
http://www.zerohedge.com/news/2016-03-01/art-berman-sees-oil-heading-16-will-lead-banking-bloodbath
Apneaman on Tue, 1st Mar 2016 11:52 pm
2cats, don’t be a despiser. White men need all their graphs and charts – makes em feel like they in control (they’re not).
Nony on Wed, 2nd Mar 2016 4:45 am
Two cats starts off by saying ‘I despise technical analysis’ then provides a link to an Art Berman interview conducted by market analysts saying its one of the better interviews. What do you think technical analysis is? You just can’t handle reading and looking at numbers but if someone reads it to you you’re ok with it. Maybe next time you see a complicated article you should ask your mom to read it to you and you might find it more interesting.
rockman on Wed, 2nd Mar 2016 6:21 am
A small point: “High oil price volatility signals that the market has not yet decided the future direction…” Like many they confuse the price of oil with the bids on oil futures contracts. Those daily swings (sometimes hourly swings) don’t affect the price the Rockman et al sells oil. While futures price are often a component of the sales price calculation they aren’t typically the dominant factor. And more important they aren’t calculated on the hourly, daily or even weekly swings in the price of futures contracts. The price the Rockman sells oil only changes once every 30 days. Those short cycle volatile prices don’t impact his sales price.
Nony on Wed, 2nd Mar 2016 8:09 am
twocats:
I didn’t post that msg above. Was my peakoil login stealer.
I do despise technical analysis, so he does a good job of aping me. I don’t know about that podcast if it is technical analysis or not.
Mark on Wed, 2nd Mar 2016 8:20 am
Wasn’t it only a couple years ago that we preaching the the US. was on the verge of “energy independence”?
Nony on Wed, 2nd Mar 2016 8:29 am
Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. There is no technical analysis in the article posted above. What there is though is data and charts,which two cats thinks must be technical analysis. Two cats obviously doesn’t know what technical analysis is.
shortonoil on Wed, 2nd Mar 2016 8:55 am
“High oil price volatility signals that the market has not yet decided the future direction of the oil price.”
High volatility is an indication that the market is confused as to why the price fell 70%; why there has been almost no increase in demand as a result of the price collapse; and why week after week the inventory numbers keep getting worse, and worse. Somewhere in Analytic Land is 10,000 analysts with stretchy lines trying to get their Supply/ Demand curves to work. What they have ended up with is their own peculiar type of Chinese Finger Trap. Oil just does not want to do what all the stretchy lines says it should?
We are not one bit surprised by what oil is doing, it is doing exactly what it appeared to be doing:
http://www.thehillsgroup.org/depletion2_022.htm
The price fell, inventories went up, and the industry is going broke while losing gobs of money. Now how exactly we knew what it was going to do, and not the now 10,000 slightly schizophrenic analysts, was totally dependent on the questions: Instead of asking “how high is the price of oil going to be”, we asked “is it going up or going down”? Instead of asking “how profitable is oil going to be in the future”, we asked “is it going to be a winner or loser”? Instead of asking, “when will all the extra inventory that is being produced gong to be sold”, we asked, “is all the extra inventory that is being produced going to sell”?
Asking the wrong question is almost guaranteed to get one the wrong answer, especially if one is convinced that they have the answer before they ask the question. We think we know exactly what oil is going to do, and it is going to do exactly what it has been doing; DEPLETING.
There can’t be much question about that — can there?
http://www.thehillsgroup.org/
paulo1 on Wed, 2nd Mar 2016 9:34 am
Nony,
I was having problems with my original login of Paulo and ended up changing it to Paulo1 a few years ago. I apologize if I have been dissing you when I should have been going for the login imposter.
Truth Has A Liberal Bias on Wed, 2nd Mar 2016 9:45 am
I wonder why the retard who runs this pathetic site felt the need to change the title of the article when they stole it from someone’s site and posted it here. What a pathetic excuse for a peak oil site. Perhaps more articles from infowars would help.
Nony on Wed, 2nd Mar 2016 10:58 am
The login stealer is doing a great job of imitating me. (above again.) Perhaps dissing me is psychically correct in that case.
twocats on Wed, 2nd Mar 2016 11:02 am
No worries Nony, I caught the ridiculousness of the fakeNony post.
Berman does throw out the $16.50 (similar to what Euan is posting) as a possible bottom simply because that’s what the bottom was 14 years ago, or whatever, and that is technical analysis. But Berman is a petroleum geologist not an energy trader.
I’m hoping the reason Euan is posting that is because technical analysis does have an impact because everyone is looking at the same numbers and seeing the same technical signals, and then trades off those signals, so it becomes a self-fulfilling prophecy.
but the price discovery of oil has become as distorted as almost everything else. this is what short is pointing to in his “head scratching analysts” example, and Berman points to when he says, “We’re not going back to anything – Normal is over, and there is no new normal yet.”
diemos on Wed, 2nd Mar 2016 11:48 am
“I despise technical analysis.”
While there’s money to be made in predicting the future you will never have any lack of people trying to cast the runes, or break out the ouija board, or read the omens in the entrails of a goat.
twocats on Wed, 2nd Mar 2016 12:42 pm
diemos, and to that point,
http://www.zerohedge.com/news/2016-03-02/frenzied-wall-street-buys-shale-equity-offering-record-pace-exxons-ceo-has-stark-war
Thrusting their hands into a turbine engine (the new “catching a falling knife”).
Another wave of investors (double fistfuls of dollars) screaming, “Take My Money!” as they dive into the energy space, because… Double Bottom!! (or fill in appropriate bottom calling trope).
First they came for the Bond Holders, and I said nothing because I owned no bonds; Now they come for the Equity Holders, and I’m saying sheet because I own no equity.