Why US oil production isn’t done rising

The oil market got another dose of data Monday that pointed to the likelihood of further gains in U.S. crude-oil production.

Oil production from seven major U.S. shale plays is forecast to climb by 124,000 barrels a day to 5.193 million barrels a day in May from April, according to a monthly report on drilling productivity from the Energy Information Administration released Monday.

The agency has forecast increases in shale-oil output every month this year so far.

Oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, is expected to see the largest climb among the big shale plays, with an increase of 76,000 barrels a day, the EIA report said.

New-well oil production per rig in the Permian is forecast at 662 barrels a day in May. That’s unchanged from April, but according to Curt Taylor, president of Opportune LLP’s Ralph E. Davis Associates, the average productivity of a rig in the Permian before April 2009 was less than 100 barrels a day.

EIA’s Drilling Productivity Report

“This, along with the increasing rig count and another increase in the DUC (drilled but uncompleted) well count…means that U.S. production supply will continue to move up,” Taylor said.

The EIA estimated DUC wells at 5,512 in March, up 111 from February. Data also show that oil production per rig has climbed year over year for at least six of the seven major shale plays.

And oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, is expected to see the largest climb in May among the big shale plays, with an increase of 76,000 barrels a day, the EIA report said.

“The Permian Basin is dominating the uptick in U.S. onshore activity,” said John White, senior research analyst at Roth Capital Partners, in a research note dated Monday. “This is because the Permian Basin is generally regarded as the most economic and productive petroleum province in the U.S. onshore due to the quality of the reservoirs, the number of individual reservoirs.”

 

The EIA’s Drilling Productivity report came on the heels of figures released by Baker Hughes BHI, -0.17%  on Thursday, which showed that the number of active U.S. rigs drilling for oil rose by 11 to 683 rigs for the week ended April 13. That marked a 13th weekly climb in a row.

Also last week, the EIA forecast, in its monthly Short-term Energy Outlook report, record production of 9.9 million barrels a day for 2018.

The figures could put a six-month extension to the Organization of the Petroleum Exporting Countries’ production cut agreement in jeopardy. OPEC and a cadre of non-OPEC countries, excluding the U.S., have agreed to curb output by 1.2 million barrels a day, with many market participants calling for the pact to be extended to the end of 2017.

 

Last week, oil prices posted a gain after The Wall Street Journal reported that Saudi Arabia told OPEC officials it wants to extend the production cut agreement past June, when the cartel meets in Vienna on May 25.

But prices for the commodity on Monday fell, settling at their lowest level in about a week as traders got a chance to digest the Baker Hughes rig-count data released Thursday, which came ahead of the Friday holiday for oil trading.

marketwatch