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Page added on January 15, 2017
U.S. Shale’s Great Reawakening
OPEC and its friends have just received some uncomfortable reading. The latest forecasts from the U.S. Energy Information Administration suggest that their agreements to boost prices and hasten the rebalancing of oil supply and demand by cutting output may bring the U.S. shale industry out of hibernation faster than they might like.
The EIA’s monthly report published on Tuesday raised its forecast of global oil demand growth for 2017 to 1.63 million barrels a day from last month’s 1.56 million, its third successive increase — that should be good news for producers. At the same time, though, the EIA boosted its outlook for U.S. oil production.
This is where the news gets bad for OPEC. Separate weekly EIA data published on Wednesday showed a 176,000 barrel-a-day jump in U.S. production from the previous week, the biggest increase since May 2015. A large part of that increase came from a revision of fourth-quarter output figures, with U.S. production raised by 100,000 barrels a day from the previous estimate — this isn’t an example of shale responding quickly to higher prices.
Why is this important? Because it means that U.S. oil production was already growing more strongly (due to increased drilling rates) than thought at a time when the consensus view was that OPEC would fail to agree to cuts and that oil prices would struggle to rise above $50 per barrel this year. These suppositions were undermined on Nov. 30, when the group agreed to cut output by around 1.2 million barrels a day, followed in early December by pledges from 11 non-OPEC countries to contribute a further 560,000 barrels of cuts.
The EIA now sees U.S. production reaching 9.22 million barrels a day by December, an increase of 320,000 barrels over the year. But this could quickly start to look like a conservative forecast.
The incoming U.S. president and Congress may turn out to be more supportive of oil extraction than the outgoing ones, after Donald Trump said in September that he would “lift the restrictions on American energy and allow this wealth to pour into our communities.” This could give the shale sector a further boost.
Given that we now know that U.S. output was rising at a rate of 50,000 barrels a day each month in the last quarter of 2016, the warming price environment created by the OPEC deal and the benign impact of reduced regulation have set the stage for signs of life in shale to gather pace. And if prices go further above $55, that could provide further impetus to its return.
It was always going to be a matter of when and not if OPEC would have to start grappling with the return of shale, and it looks like that time had already come even before it started supporting oil prices again. The big question is to what degree will the group and its members comply with what they said they’ll do, and how much extra boost that will give to the U.S. shale oil industry.
OPEC is already talking of extending the time frame for its output cuts when it meets in May. It may also have to consider deepening them if it’s serious about balancing supply and demand. The problem it faces is that doing so will simply improve the outlook for shale.
18 Comments on "U.S. Shale’s Great Reawakening"
dave thompson on Sun, 15th Jan 2017 10:08 am
Shale is dead long live the shale!
joe on Sun, 15th Jan 2017 10:21 am
1st of all its not an Opec deal because it includes Russia, so thats an important propaganda element that needs to be dealt with. 2nd too many Opec nations are getting a pass for it to be a ‘deal’. What it really is, is this, Opec nations agreed that Saudis and Kuwait and some others would slightly reduce the flow of oil. Thats it! Some people called 70 dollar oil off that! Shale lives off debt, not oil price. Drillers dont go out and drill shale because oil is 100dlrs there was a shale industry before peak oil. Shale drillers go out drill because there is a demand for their product. Refiners dont care who supplies them they just want raw materials, and they pay market prices set in NYMEX. International refiners in China or India may get deals, but Americans dont, but for them its fine cause oil is priced in dollars and guess what, weve had nearly 20 years now of monetisation of all Americas problems. Saudi is miscalculating that US refiners will stay away from tight oil because of price, but can they be that stupid? Tight oil drillers can get investment capital and that capital is cheaper than ever because so much of the industry is mothballed and thousands of experienced hands are waiting for jobs keeping wages low. There is so much marginal profit in tight oil that Saudi should fire their economists. The irony is that probobly for the next three to five years tight oil will be around until it needs massive investment in equipment etc. Can Saudi sustain 5 years of 40-55 dollar oil? Not if their super giants are drying up and they have to make Muhammad get a real job for the first time in his life.
Boat on Sun, 15th Jan 2017 12:44 pm
The Eia raises their global oil growth forecast from 1.3 Mbpd to 1.6 Mbpd in 2017. Wow that’s a huge jump. Just last month the Iea raised their forecast from 1.2 Mbpd to 1.3. Their report will be out on the 19th.
There is still a glut. Liberia and the US are growing production at a pretty good clip. Nigeria after adding 200,000 bpd are facing headwinds from strikes and Rebels. They have managed to add 30,000 bpd lately with hopes of around 300,000 by June. We will see.
Most of Europe, Japan, US, Russia, Brazil expect increased growth rates to their GDP’s.
Conclusion? We’re not going to crash anytime soon. We’re not going to run out of oil anytime soon.
GregT on Sun, 15th Jan 2017 1:13 pm
Oil producers aren’t talking about cutting output because of The Glut™ Boat. They are cutting output to raise prices. Oil prices are already ~200% higher than they have been during non-recessionary periods going back for the better part of a century, in inflation adjusted dollars. Something doesn’t add up quite right with your supposed conclusion.
Epic fail. Try again.
BobInget on Sun, 15th Jan 2017 4:04 pm
China’s shale possibilities
http://oilprice.com/Latest-Energy-News/World-News/BP-Sets-Up-Shale-Gas-Operation-In-China.html
Argentina;
http://oilprice.com/Energy/Energy-General/Shale-Drilling-Set-To-Take-Off-In-Argentina.html
USA;
http://earthjustice.org/blog/2015-june/fractivism-2-0?gclid=CjwKEAiA2OzDBRCdqIyIqYaaqQoSJABeJZdi8biBj_GHQBL3-ECT6nnKVAU3I8d2YQwsqxWs-ZFdYBoCy8_w_wcB
coffeeguyzz on Sun, 15th Jan 2017 5:26 pm
… and next up, perhaps, the UK.
There is preparation underway right now to build a pad in the UK and drill their first unconventional well from it in a few months.
The preliminary geologic evidence is promoting high expectations for major future development.
makati1 on Sun, 15th Jan 2017 5:37 pm
Gee Coffee, there are a lot of “high expectations” souring around the world today, but they will be dashed by the world of reality. Oil is one of them. The Stock Market Casino is another. I would not bet my future on “high expectations”.
rockman on Sun, 15th Jan 2017 5:42 pm
First, they are talking about a projection of increasing US production TREND. Time will tell. But we have yet to see such a trend. Second, y-o-y production has decreased from 290 mm bbls to 273 mm bbls per month. And for the last 12 months we’ve seen a m-o-m increase 5 times. But we’ve also seen a m-o-m DECREASE 5 times. The bad news: there is no documented INCREASING trend in US oil production as of latest data from last Oct. The good news: we are on a US oil production PLATEAU with a small bit of positive and negative volatility on the order of +/- 3%.
We can look back in Dec 2017 and see then if the PROJECTION proved correct or not.
The EIA monthly production:
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus1&f=m
Boat on Sun, 15th Jan 2017 9:45 pm
greggiet,
They have been talking in about cuts in production because of the glut for months. Play the blooming idiot if you want. I just watch the numbers.
Boat on Sun, 15th Jan 2017 9:52 pm
rock,
Maybe you don’t see the trend but I do. Rig counts are rising over a period of several months and production which has some lag time is also rising.
GregT on Sun, 15th Jan 2017 10:12 pm
Boat,
“They have been talking in about cuts in production because of the glut for months.”
If prices were high enough they wouldn’t give a rat’s ass about The Glut™. Try using your grey matter, instead of simply being mesmerized by ‘the numbers’.
rockman on Sun, 15th Jan 2017 10:17 pm
Boat – “…production which has some lag time is also rising.” No it isn’t. The data from the EIA I posted (if you had bothered to look) shows you are not correct. We may be on the verge of beginning an increasing trend…or we may not. The data clearly shows we have been on an undulating plateau for about a year.
As I said we can look back when December rolls around as see what actually develops. I would actually expect to see a bigger impact from DUC’s being completed on total production then an increase in rig count. And that might explain the plateau.
Patience, bubba. LOL.
Nony on Mon, 16th Jan 2017 12:01 am
See here for the JAN 2016 EIA STEO: http://www.eia.gov/outlooks/steo/archives/jan16.pdf (fifth bullet down)
One year ago, as shown in the link, EIA predicted 2017 would be 8.5 MM bpd.
Current EIA prediction for 2017 production is ~9.0 MM bpd.
Although, it is fair to say that oil production outlook is for a plateau in 2017, it is still a sunnier outlook (9.0 versus 8.5) from a year ago.
GregT on Mon, 16th Jan 2017 12:29 am
See here for the Dec 22/2016 update as to why that “sunnier” outlook is very bad news indeed, for mankind, and all other species of life on this planet.
What’s happening in the Arctic, isn’t going to stay in the Arctic.
https://2.bp.blogspot.com/-C0-Rstf5sTQ/WFz9oQhtF4I/AAAAAAAAWSc/0ZKoj6Qq5iw3yJXXTtveHyVGmVe7iWHVwCLcB/s1600/Dec-22-2016.png
tita on Mon, 16th Jan 2017 1:23 am
Since march 2015, US shale oil production have decreased, except for october 2015 and october 2016. We need the data for the last months of 2016 (nov-dec) to know the real trend. There are other factors apart the rig count for a short-term increase, but you need a much higher rig count for a sustained increase in shale production.
Nony on Mon, 16th Jan 2017 8:49 am
https://www.eia.gov/outlooks/steo/pdf/steo_text.pdf (see fifth bullet down)
US crude production was at 8.9 MM bpd in 2016. (200,000 bpd better than EIA had predicted in JAN 2016.) They now predict US to do 9.0 MM bpd in 2017 and 9.3 MM bpd in 2018. [For comparison, the best recent year was 9.4 in 2015. 2014 despite the much ballyhooed boom amidst high prices was only 8.7 MM bpd.]
Nony on Mon, 16th Jan 2017 9:13 am
Tita, yes we need to wait a little for the final NOV-DEC data. But EIA says if their initial estimate holds up, we will have a quarter on quarter growth: fourth versus third quarter 2016.
“…based on the latest available monthly data from October and production estimates from November and December, EIA estimates that production began increasing in the fourth quarter of 2016, averaging 8.9 million b/d for the quarter, up from an average of 8.7 million b/d in the third quarter. If confirmed in final data, this would be the first quarterly production increase since the first quarter of 2015. Although most of the fourth-quarter increase came from the federal Gulf of Mexico, EIA estimates that Lower 48 onshore production also increased by almost 60,000 b/d.”
peripato on Tue, 17th Jan 2017 12:02 am
I see that this article mentions neither decline nor depletion in relation to shale. Ha. ha. Next…