The oil just keeps on gushing. All of the main producing regions posted gains in November. As expected, the oil price tested lows on the right shoulder of the head and shoulders pattern and carried on down this month heading for lows last seen in December 2008. Back then OPEC slashed production providing strong support for price. I don’t see that happening soon and therefore my prognosis remains that $20 (the deflated low from 1999) is required to elevate the pain levels to that required to shut off surplus supply. News that the USA may resume oil exports closed the WTI-Brent spread.
- World total liquids production up 50,000 bpd to 96.85 Mbpd.
- OPEC production up 50,000 bpd to 31.73 Mbpd (C+C)
- N America production up 280,000 bpd to 19.90 Mbpd.
- Russia and FSU up 150,000 bpd to 14.09 Mbpd
- Europe up 20,000 bpd to 3.44 Mbpd (compared with November 2014)
- Asia up 60,000 bpd to 7.91 Mbpd.
- Middle East rig count is rising. The international oil rig count is falling slowly. The US oil rig count is falling.
- Note that the differences noted above do not tally with the global figure because of the pattern of data revisions. But the trend is not down.
This article first appeared on Energy Matters.
Figure 1 The oil price has continued to trend down through December passing through support at $40. It is still possible from a chart perspective that the oil price gets support at around current levels ($37 as I write). But from a fundamental supply demand perspective there is no reason for that support to be given.
Figure 2 The bigger picture shows that the oil price is now approaching the lows set in December 2008. The price could get support at this level, but fundamentally there seems no reason for this to occur.
Figure 3 News that the USA may resume oil exports closed the WTI – Brent spread. This has happened on a number of occasions in the last two years and it remains to be seen if the normal WTI premium becomes re-established.
Figure 4 The fall in US oil and gas rig count is once again accelerating. The blip represents 675 rigs on 28 August and has since fallen to 538 oil rigs on 23rd December, a fall of 137 rigs in 18 weeks. 538 rigs still drilling, used to drill better wells in sweet spots, is sufficient to substantially offset declines which is why US production is trending down only slowly.
Figure 5 This expanded scale shows that the rate of decline in US oil directed drilling is muted compared with the big drop seen earlier this year. On 18 December, 10 rigs were re-classified from gas to oil. This has the effect of slowing the decline in oil rigs and accelerating the decline in gas. On 23 Dec the total rig count was 7oo compared with a post-crash low of 876 seen on 20 June 2009.
Figure 6 The near-term peak in US production was 13.24 Mbpd in April 2015. The November figure was 12.80 Mbpd, down 440,000 bpd from that peak. US oil production has been amazingly resilient in the face of the collapse in drilling. The effect of IEA revisions is to show that US production is falling only slowly. And reports of thousands of drilled but uncompleted wells may cause this situation to persist for many months.
Figure 7 OPEC production stands at 31.73 Mbpd up 50,000 bpd on October. This appears to define a plateau level in OPEC production. There has been very little action in the OPEC producers, all are managing to maintain production levels. Iran is waiting in the wings to introduce a further 730,000 bpd (IEA) when / if sanctions are lifted early 2016.
Figure 8 OPEC booked spare production capacity stands at 3.18 Mbpd with 2.07 in Saudi and 0.73 in Iran. Note how OPEC withheld over 4 Mbpd in the 2008 post-crash era that supported price, eventually sending it back over $100.
Figure 9 In October Saudi production fell by 20,000 bpd to 10.19 Mbpd which is effectively unchanged. 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 10 The ME OPEC oil rig count is on a rising trend with operational cycles superimposed. While the rest of the world has lost its appetite for drilling, it is business as usual for the ME OPEC countries.
Figure 11 The international oil rig count had been stable for 6 months but has started to inch down once more. The international rig count remains above the peak seen at the top of the 2008 price cycle. There are still a lot of rigs operational.
Figure 12 Russia and other FSU produced 14.09 Mbpd in November, up 150,000 bpd and little changed for 3 years.
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. The dashed line shows that European production has been essentially flat for three years. The post-peak declines have been arrested. Compared with Nov 2014, European production is up 20,000 bpd to 3.44 Mbpd.
- Norway Nov 2014 = 1.94 Mbpd; Nov 2015 = 1.92 Mbpd; down 20,000 bpd YOY
- UK Nov 2014 = 0.74 Mbpd; Nov 2015 = 0.99 Mbpd; up 250,000 bpd YOY
- Other Nov 2014 = 0.74 Mbpd; Nov 2015 = 0.53 Mbpd; down 210,000 bpd YOY
Figure 14 This group of S and E Asian producers has been trending sideways since 2010. The group produced 7.91 Mbpd in November, up 60,000 bpd on the revised October figure.
Figure 15 N American production looks like it topped in April at 20.12 Mbpd:
- USA Oct 2015 12.76 Mbpd; Nov 2015 12.80 Mbpd; up 40,000 bpd
- Canada Oct 2015 4.35 Mbpd; Nov 2015 4.5 Mbpd; up 150,000 bpd
- Mexico Oct 2015 2.60 Mbpd; Nov 2015 2.60 Mbpd; unchanged
Group production up 280,000 bpd from October to 19.90 Mbpd in November. Group production down 220,000 bpd from the April peak.
Figure 16 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. November production was 96.85 Mbpd up 50,000 bpd on the revised October figure. With the October figure revised down, July 2015 remains the IEA total liquids peak at 97.08 Mbpd. November production is down 230,000 bpd from that peak. The most that can be said is that Global total liquids has stopped rising but there is as yet little sign of the fall in production that is required to restore balance to the market.
In my analysis of Oil Price Scenarios for 2016, momentum of supply was an overriding feature that I saw driving prices lower and keeping prices low throughout 2016. There is nothing in the data presented here for November 2015 to change that view. Saudi Arabia’s stance appears to be hardening making Capitulation unlikely for now. But the world remains a dangerous place and destabilising Events may happen any time. While attention is on Syria and refugees, it is perhaps time for Ukraine to re-enter the fray.