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Page added on May 28, 2015

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US oil production hits 43-year high

Production

U.S. oil production surged to a 43-year high, despite a price war that resulted in a more than 50 percent reduction in active U.S. oil wells.

Oil prices saw downward pressure in volatile trade Thursday morning, after the Department of Energy reported a draw down in crude inventories of 2.8 million barrels for the week ended May 22.

The DOE also reported that U.S. production rose to 9.566 million barrels per day, surpassing the previous peak of 9.422 million set in March. While no weekly data is available beyond 1983, the production number is the highest, if translated to a monthly basis, since May 1972.

From a supply and demand standpoint, record production in the United States and record production of 10.3 million barrels a day from Saudi Arabia in April continue to confirm that global supplies are ramping up in the face of lower prices, not falling.

An oil well owned an operated by Apache Corporation in the Permian Basin is shown in Garden City, Texas, Feb. 5, 2015.

An oil well owned an operated by Apache Corporation in the Permian Basin is shown in Garden City, Texas, Feb. 5, 2015.

The Organization of the Petroleum Exporting Countries has adopted a market-based pricing strategy that it hoped would shake out high cost producers. One such high cost producer is the U.S. shale industry, which dramatically boosted world production in recent years.

While U.S. rigs are now down more than 50 percent from last year, analysts and traders have speculated that the rigs coming off line are those that were already declining in production and that the robust rigs are still operating.

In addition, many investors believed that lower prices would squeeze U.S. shale producers to produce less, but the data show otherwise.

Analysts say the high level of production shows that the U.S. industry continues to be resilient and continues to find efficiencies in the system. “As the industry went through the first quarter we really haven’t seen the effect of declining rig counts,” said Andrew Lipow, president of Lipow Oil Associates.

Still, crude prices pared losses after the report.

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“I actually think this report could be a little bullish for the market,” said Anthony Grisanti, president of GRZ Energy. “When I look at the numbers I see a 2.8 mm barrel draw in crude and a 3.3 mm barrel draw in gasoline. That tells me that despite record production supplies are decreasing.”

“It’s possible that with Memorial Day and the start of summer driving season demand picked up, that’s seasonal. But in that case I’d expect to see a draw in gasoline, not necessarily in crude.”

Thursday morning Reuters reported that OPEC’s draft report ahead of the June 5 meeting showed the cartel to believe that non-OPEC producers would continue to ramp production until 2017. If demand conditions don’t change that could mean that either the cartel will have to take action to cut supply, or producers as a whole will have to endure lower prices for an extended period of time.

Citigroup analysts, in a note, said they saw no change in OPEC’s 30 million barrel a day quote, when the cartel meets June 5. OPEC refrained from cutting production at its November meeting, and already weakening prices fell further.

“Saudi Arabia—the only vote that really counts—seems determined to stick with its new ‘market share’ driven policy if the record oil rig count in the Kingdom is any indication. The Saudi delegation will be scrutinized for any shift in policy given the overhaul of oil leadership. Ali Naimi remains Oil Minister but the market is keen to understand the implications of Deputy Crown Prince Mohammed bin Salman’s newly acquired oversight of the oil sector,” Citigroup energy analyst Seth Kleinman wrote.

 

Kleinman said, for now, OPEC hawks have been “cowed.”

“Iran, typically the loudest hawk, is hoping to see its production rise materially in the coming year with sanctions removed, and if it hopes that OPEC will make room for this increase, and hence avoid an intra-OPEC price war, arguing for cuts now would be impolitic at best,” he wrote.

Lipow, meanwhile, said the jump in U.S. production likely had little to do with a recent rise in oil prices. Analysts have expected U.S. producers to find more interest in drilling as oil prices rise close to and above $60 per barrel.

Lipow speculated that the increase last week could be the result of the DOE adjusting its weekly data ahead of its release of March monthly data Friday. He said this could be because March production is going to be much higher than the market thinks. Lipow expects it to be around 9.4 million barrels a day but the market may be expecting 9.2 million.

At 9.4 million barrels a day on monthly basis, March production would also be highest since 1972.

CNBC



9 Comments on "US oil production hits 43-year high"

  1. Sugar Seam on Fri, 29th May 2015 3:25 am 

    u.s. rig count spun masterfully… the drop is the result of exhausted wells that werent doing much anyway!!! hooray!…. no mention of the easily verifiable fact that maintaining shale production volume requires constant new drilling… no mention of lag time and whats to come by this time next year.

  2. Revi on Fri, 29th May 2015 6:58 am 

    This could be the peak, for the US, and maybe for the world. It talks about March production, so we’ll have to see how April and May shake out. Patterson might have been right!

  3. rockman on Fri, 29th May 2015 8:08 am 

    “…continue to confirm that global supplies are ramping up in the face of lower prices, not falling.” Patience, child, patience. LOL. They had to write this piece today. In a few more months the editor would have thrown it in the trash

  4. Revi on Fri, 29th May 2015 9:46 am 

    I agree. It only talks about the amount we got in March, and it may have peaked around then.

  5. Keith on Fri, 29th May 2015 11:52 am 

    This piece is rubbish. US tight oil is already falling. It is just that the EIA does not measure production. It estimates with an algorithm. Well completions have been falling as fast as operating rigs. We all know that unconventional wells drop by 75% in their first 12 months. Massive drilling is required to replace declines in legacy wells. Yet people somehow believe that with a 60% drop in rigs, production can be maintained. Magical thinking.

  6. JuanP on Fri, 29th May 2015 12:09 pm 

    This one had me LOL a few times!

  7. rockman on Fri, 29th May 2015 12:47 pm 

    I thought this might be worth reposting given such expectations as presented in this piece:

    In Texas no one has a record of how many wells have been drilled that are yet frac’d. Folks are free to guess all they want. But the companies aren’t supplying the detailed data and the TRRC doesn’t require notification. Only one way to add the numbers up: wait for the TRRC to post the first production from new EFS wells. That’s the only way to make a guess. But remember besides the lag time waiting on a frac crew in can take a month or two to set up the production equipment. And then the company doesn’t report production to the TRRC until the month after it begins producing…and sometimes it can be a month late with the data. And then it can take 1 to 2 months for the TRRC to post the data. And I don’t go to the TRRC for production data…not very use friendly. So I wait for Drilling Info to gather the data and post it. The data being posted on DI today is for wells first producing in Feb/March.

    Bottom line: the production posted for March is wells that still were drilling in 4Q 2014…some maybe longer ago. Just watch for the numbers of new EFS wells coming on production. I wouldn’t expect to see a significant drop off in those wells until the June+ given those would be the wells that were drilling in Jan 2015. And given the rig drop wasn’t in full swing until after Jan it will be another 4 or 5 months before you can get a sense of how many, if any, operators voluntarily stalled their fracs.

    So here’s some real data for you to chew on. From Drilling Info I pulled up all the EFS wells that have begun producing since last August…725 of them. Here’s the number that began producing each month since then:

    Aug – 103
    Sept – 131
    Oct – 127
    Nov – 171
    Dec – 198
    Jan – 90
    Feb – 103
    March – 4 See what I mean about late reporting. I wouldn’t accept the March count for at least another couple of more months. There were certainly more than 4 wells that began producing that month.

    First notice how the count is rather erratic from month to month. So Feb is down a good bit from Dec but Dec is very anomalous and much higher than Aug. And Feb is the same count as 7 months ago…long before the rig count fells. And remember the wells that began producing in Aug 2014 were probably being drilled 4 to 6 months earlier…way, way before the rig count drop.

  8. Apneaman on Fri, 29th May 2015 1:33 pm 

    Texas economic outlook darkens
    Dallas Federal Reserve had warned of economic consequences of weak oil market.

    http://www.upi.com/Business_News/Energy-Resources/2015/05/27/Texas-economic-outlook-darkens/2951432718199/

  9. Northwest Residents on Fri, 29th May 2015 2:09 pm 

    Long term oil-to-economy trends show a conclusive relationship between the economy and oil production that are not subject to distortion by any given propaganda theme being pumped out during any time point on the graph.

    When oil production is rising, the economy rises. When oil production decreases, the economy heads south. It is just that simple.

    And conversely, if we see the economy heading south — which we certainly do — then despite all current propaganda and financial manipulations designed to hide the fact, we can rest assured that oil production is plunging in tandem with the economy, with oil production actually leading the way and the economy merely along for the ride.

    Record oil production, my ass. They’re producing a whole lot of “crap” and a lot of liquids that are now classified as “oil” but never were before. If you want to know where oil production is really headed, look at the economy. Connect the dots, and then you’ll see the real story.

    The only REAL “glut” these days is the glut of lies, financial manipulation, propaganda and assorted obfuscations intended to hide the dire truth.

    We are on our way down. Previously, we were always able to find another magnificent source of oil/energy to power us out of the doldrums and into the economic and consumption heights. This time, we can be certain that no such magnificent oil find is lying in wait, there for the plucking. In other words, this time, there is no bottom in sight as we plunge further and further into economic stress.

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