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Page added on June 3, 2016
Oil Price Poised For A Boost From A Big Fall In U.S. Production
U.S. oil production has entered the end game with output forecast to plummet as drilling dries up and banks foreclose on oil companies teetering on the brink of insolvency.
Long predicted as a natural development after the 2014 start of the collapse in the oil price the inevitable has been delayed by drillers squeezing every drop out of their wells but that game is all but over.
From a peak of more than 9.5 million barrels a day early last year current output has slipped to 9.1mb/d but if a fresh forecast is correct the number could be 8.5mb/d by July and possibly below 8mb/d in the September quarter.
Back To 2013
If correct that prediction from Australian-based ANZ Banking Group will mean that U.S. oil output will be back to levels last seen in early 2013, the mid-point in the U.S. oil revival.
Slipping U.S. production has been a factor in this year’s oil-price recovery, along with outages in traditionally strong producers such Nigeria and Iraq.
The work of ANZ’s highly-regarded commodities research team into the U.S. oil industry will play well at today’s meeting in Vienna of the Arab-led Organization of Petroleum Exporting Countries where fresh calls are expected for production cuts from countries suffering the effects of the low oil price but resisted by oil hawks such as the industry leader, Saudi Arabia.
Saudi Smiles
The Saudi view has consistently been that the oil market will fix itself with low prices forcing high cost producers out of business, leading to a sustainable price recovery.
What the ANZ has done with its report released earlier today is reinforce the Saudi position with the headline telling the story: “Declines in U.S. oil output set to accelerate”.
A key to the ANZ view is that there are simply not enough drilling rigs active in the U.S. to maintain output. While the most closely followed rig count from the oil services firm Baker Hughes BHI +0.74% puts the number of rigs in the field at 316 (down two on last week) ANZ reckons only 280 are currently in operation.
“To maintain current production levels in the U.S. requires 439 rigs,” ANZ said.
Financial Stress Doing Its Work
Financial stress could exacerbate the situation, the bank added. “Oil producers with sub investment grade debt maturing this year produced approximately 1.3mb/d of oil,” a number served up without ANZ offering a suggestion as to how much of that “stressed” oil be squeezed out.
But, the clear inference is that a major slip is just around the corner.
“Despite drilling activity continuing to fall, U.S. output has remained relatively resilient, ANZ said. “Active or new drilling rigs in the U.S. have fallen from 1600 to 316 (in May) the lowest level since September, 2009.
“This is only just being translated into a fall in U.S. oil production.
Low Prices Bite
“However, we believe the rate of falls in weekly U.S. oil production is about to accelerate as the impact of the falling rig count will be compounded by forced closures and low prices biting.”
One measure of what lies ahead is an ANZ calculation of the daily decline in U.S. production which saw a drop of 65,000 barrels a day in the second half of last year, followed by a fall of 87,000b/d so far this year. But, on some days in recent months, the bank noted, the daily decline has been an eyecatching 197,000 barrels.
ANZ also disputes a recent forecast by the western world’s oil industry watchdog, the International Energy Agency, which is tipping U.S. production of 8.2mb/d by next October, down from the current 9.1mb/d and remaining around 8.2mb/d through 2017.
Upside Oil Price Risk
“This could prove conservative,” the bank said. “We expect the increasing indebtedness to magnify the losses, with U.S. production forecast to fall to below 8mb/d in the September quarter.”
The bank did not provide an oil-price tip but did note that the sharp fall in output over the past few months represented “upside risk” to the oil price as supply cuts start to be felt on stock levels.
69 Comments on "Oil Price Poised For A Boost From A Big Fall In U.S. Production"
Outcast_Searcher on Sun, 5th Jun 2016 11:16 am
Shortonoil wrote: “The energy density argument falls apart immediately. That chart merely shows that a dollar is becoming worthless when compared to a non changing reference. BTU is a non changing reference. According to their chart in 1950 one (1) dollar could have bought 15,850 BTU; by 2015 it had fallen to 5,970 BTU. At that rate your pay check will soon not be able to buy enough energy to flick your Bic.”
And this shows how far the doomers will go to embrace the loony bin to make a false point to “prove” their theories.
The dollar inflated roughly between 7 and 10 times from 1950 to 2015 (per various sites and inflation calculators I looked at). Using Short’s BTU figures, a BTU decreased by less than a ratio of 8/3, or well under 3 times in the same period. (Or to be more exact: 15,850 / 5970 = 2.65).
So, the energy intensity of the ENTIRE economy decreased by roughly 3 to 4 times (the dollar decreased three or four more times than the price of a BTU). (i.e. 8.5 / 2.65 = 3.21).
This is precisely what the credible statistics about the energy intensity of the US economy say. Short can play whatever distracting games he wants with the fact that inflation exists — it doesn’t change the story about the first world economies’ declining energy intensity at all.
http://www.eia.gov/todayinenergy/detail.cfm?id=10191
Looking at the EIA’s energy intensity chart, eyeballing 2015 vs.1950, we get about a third, so we now get three more times GDP from a BTU. That’s mighty close to the 3.21 figure we got above, given that we’re using back-of-the-envelope figures.
But I know. We’re not allowed to use logic if it gets in the way of the “oh my, we’re all certainly doomed real soon now” crowd.
Davy on Sun, 5th Jun 2016 11:40 am
NR said “I would be interested in the thought process that lead you to that conclusion.” NR, it is an intellectually lazy process of defaulting to anti-Americanism for anything and everything.
Boat on Sun, 5th Jun 2016 11:52 am
Doomers deny the progress already made.
https://www.eia.gov/forecasts/aeo/section_energyintesity.cfm
Davy on Sun, 5th Jun 2016 11:55 am
Boatie, we are not arguing the past so much as calling into question the future.
Northwest Resident on Sun, 5th Jun 2016 12:00 pm
Yeah, Davy — Intellectually lazy or owing to obsessive hatred distorting all sense of logic — I’m not sure which. What makati1 and others on this forum seem to forget is the cardinal rule of life on earth, whether for humans or other life forms. And that is, the Big Dog always acts to preserve and enhance its position at the expense of others. Cursing America for using the most energy is pointless. If it wasn’t America, it would be some other nation state. If it wasn’t ruthless and greedy Americans (and their vast assortment of international partners in crime from all other nations), then it would be ruthless and greedy people of another nationality. Always was. Is today. Always will be. That’s the way the world works. I don’t mind that makati1 hates America with all his soul and all his being — that’s his problem. What annoys me is that he constantly, repetitively blames America for doing what any other nation in a similar position would do, or would jump at the opportunity to do if only the American Big Dog would just get out of the way. Puny minds fail to recognize reality and instead resort to blame, simmering festering hatred and distorted logic. Exactly what we see so much of on this forum.
Northwest Resident on Sun, 5th Jun 2016 12:05 pm
“Doomers deny the progress already made.”
Boat, you’re cracking me up. The global economy is swirling downward in an irreversible vortex of debt and depleted resources, and you’re picking out tidbits of government propaganda to post on this site to (I suppose) counter the idea that human civilization is on the verge of epic collapse. You’re not much of a big picture guy, are you?
shortonoil on Sun, 5th Jun 2016 12:32 pm
“Puny minds fail to recognize reality and instead resort to blame, simmering festering hatred and distorted logic.”
That is exactly what will make the transition so difficult. You will be more likely to be executed in a troglodyte like witch trail than starve to death from a food storage. Once people begin to realize that it is not safe to be around other people you have social collapse by definition. If this board is any indication of how people think (or don’t) there are real problems ahead.
shortonoil on Sun, 5th Jun 2016 12:46 pm
“And this shows how far the doomers will go to embrace the loony bin to make a false point to “prove” their theories.”
We can assume that you are going to insist that 5,970 is more than 15,850. This only goes to show how desperate that TPB, and their minions have become. Stay tuned folks, next week the author of this post is going to give a lesson on introductory “New Speak”. If you miss it you will automatically be enrolled in the necessary “Retraining Program”. “Thought Crime” is a serious offense.
Northwest Resident on Sun, 5th Jun 2016 12:59 pm
For a preview of what’s to come, check out the Twilight Zone episode posted on this page:
http://www.peakprosperity.com/blog/98674/grasshopper-nation-planning-those-who-arent-prepared
Nice respectable people turn mean nasty and ugly real fast under dire circumstances. Human nature. Blame God. After all, we were made in His image.
GregT on Sun, 5th Jun 2016 1:01 pm
And this shows how far the cornies are willing to ignore reality, in essence, leading us all into the spiral of doom.
https://shawglobalnews.files.wordpress.com/2016/05/5_9_16_andrea_tempspiraledhawkins.gif?w=720&h=775&crop=1
shortonoil on Sun, 5th Jun 2016 1:50 pm
“And this shows how far the cornies are willing to ignore reality, in essence, leading us all into the spiral of doom.”
What I have observed is that these are primarily people who can only manage their existence within a frame work of a very rigid, and stable society. They have been conditioned to believe that what they are experiencing is the way that things have always been, and that they will always remain this way. If confronted with the real situation at hand they lose perspective, and resort to magical thinking. There is really very little difference between an all seeing, and protective extra dimensional being, and an EV that will be powered by some imaginary energy of the future. They all fall into the category of improbable, but are held as irrefutable truths. Once any semblance of pretense can no longer to maintained it is likely that some of them will revert of savagery.
marmico on Sun, 5th Jun 2016 2:03 pm
The energy density argument falls apart immediately. That chart merely shows that a dollar is becoming worthless when compared to a non changing reference
Energy intensity is about real (inflation-adjusted) dollars you loony bin fuctard.
5,970 [15,850] BTUs is correlated with $1.00 [$2.65] of real 2015 GDP and $0.32 [$1.00] of real 1950 GDP.
Boat on Sun, 5th Jun 2016 2:21 pm
Northwest Resident on Sun, 5th Jun 2016 12:05 pm
“Doomers deny the progress already made.”
Boat, you’re cracking me up. The global economy is swirling downward in an irreversible vortex of debt and depleted resources, and you’re picking out tidbits of government propaganda to post on this site to (I suppose) counter the idea that human civilization is on the verge of epic collapse.”
Yes NR, that is exactly it. That is why before, during, after the 2007 rash and to this day I invest in the stock market. I am a big picture guy and history indicates I’m good at it.
GregT on Sun, 5th Jun 2016 2:28 pm
“I am a big picture guy and history indicates I’m good at it.”
How’s that dollar cost averaging working out for you “big picture guy”?
http://money.cnn.com/data/markets/sandp/
You would have done better in a high interest savings account. (still would have been in the red though)
onlooker on Sun, 5th Jun 2016 2:54 pm
So, big picture guy, what are you going to invest in once human civilization collapses?
Boat on Sun, 5th Jun 2016 3:30 pm
Greggiet,
I think in terms of 10 years out unless I build a net zero energy house. I’ve really been waiting on solar to improve along with electric cars. Maybe 7 years?
Northwest Resident on Sun, 5th Jun 2016 3:33 pm
Boat, your investment growth is entirely dependent on ever more debt issuance by central banks. It isn’t that you’re a smart investor, or a lucky one. It is just that when central bank policy is to inflate asset prices, those with assets including investments get the benefit at the expense of those who do not. I work in a position that allows me to see hundreds (thousands!) of individual portfolios as a normal part of my daily routine. If you are somehow still “up” from the May or June 2015 stock market peak, then I guess you could be considered lucky since most are not. A funny thing happens to asset prices that have been artificially inflated by central bank policy when the central banks withdraw the stimulus — they drop like rocks. So, if your investments are still doing well for you — and that’s a big “if” in my experience — then trust me, it is only a temporary state of affairs. If you measure your “worth” and security based on the value of your investment portfolio, then all I can say is that you are in for a world of pain. My advice: Cash out now, take the tax hit and count yourself fortunate, invest in something real, get ready for a paradigm shift.
GregT on Sun, 5th Jun 2016 3:38 pm
The trends are not pointing towards the positive 10 years out Boat, and solar works about as well now as it did 10 years ago. 7 years from now might very well be too late. Better to move elsewhere, Houston also isn’t trending in a very positive direction. Location, location, location!
shortonoil on Sun, 5th Jun 2016 3:45 pm
“So, big picture guy, what are you going to invest in once human civilization collapses?”
A better question might be is what would one invest with. With the FED’s balance sheet standing at $4.5 trillion, and only having $32 billion to back it up, it seems unlikely that the FRN is going to around much longer. With the Treasury likely to redeem those FED notes at 10 cents on the dollar, there is not going to be much investing into anything.
Other than that, everything looks “peachy”, except of course for the petroleum industry bankruptcies rolling this way.