Oil Production Vital Statistics January 2016

Market fundamentals point to chronic over-supply of crude oil throughout 2016. The technicals point to the makings of an oil price rally. A strong price rally from current levels may extend the situation of chronic over-supply that may have a debilitating impact on the oil price and the oil industry for years to come.

Figure 1 The oil price has seen a lot of action since the last report. As anticipated, support in the vicinity of $40 did not hold and the price moved sharply lower in January. WTI hit $26.68 and Brent $26.01 on January 20th. Since then there has been a cyclical rally. More on the future direction of the oil price at the end of this report.

This article first appeared on Energy Matters.

EIA oil price and Baker Hughes rig count charts are updated to the end of January 2016, the remaining oil production charts are updated to December 2015 using the IEA OMR data.

Figure 2 The bigger picture shows how price support has been busted . The lower dashed line shows the lows reached in 1998. On a deflated basis that works out at around $15 in today’s money.

Figure 3 The US oil and gas rig count has continued its steep decline, but as yet this has not shown up in significant falls in US production. The situation remains complicated by large numbers of drilled and uncompleted wells coming on line. At some point the fall in drilling must show up in sharply lower production. But with 498 rigs still drilling oil and 121 rigs drilling gas (+associated liquids) there is still a lot of new production to substantially offset steep declines in LTO wells.

Figure 4 The near-term peak in US production was 13.24 Mbpd in April 2015.  The December 2015 figure was 12.76 Mbpd, down 480,000 bpd from that peak. US oil production remains stubbornly high. Only when this begins to fall substantially will analysts be able to chart a restoration of market balance that may then lead to a significant rally in oil price.

Figure 5 OPEC production stands at 31.59 Mbpd down 130,000 bpd on October. 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) in the course of 2016 now that sanctions have been officially lifted. Indonesia has now bizarrely re-joined OPEC but I will continue to plot Indonesia with Asian countries since it is in fact a substantial importer of oil.

Figure 6 The IEA have been late this month in releasing data and the public version of the OMR and spare capacity numbers for December are not yet available.

Figure 7 In December Saudi production fell by 50,000 bpd to 10.14 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 8 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 remains business as usual for the ME OPEC countries.

Figure 9 The international oil rig count continues its slow decline and has now declined to the peak level of 2008. I suspect a large number of the rigs counted here as operational are in fact under contract but stacked by clients who in the UK at least have lost their appetite for drilling.

Figure 10 Russia and other FSU produced 13.95 Mbpd in December, down 120,000 bpd and little changed for 3 years. Russia was in fact up and all of the marginal decline came from the other FSU countries.

Figure 11 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 but is now showing signs of rising, the result of the industry working flat out for 5 years on the back of $100 oil.  European production is up 30,000 bpd to 3.49 Mbpd compared with a year ago.

      • Norway Dec 2014 = 1.96 Mbpd; Dec 2015 = 2.02 Mbpd; up 60,000 bpd YOY
      • UK Dec 2014 = 0.91 Mbpd; Dec 2015 = 0.93 Mbpd; up 20,000 bpd YOY
      • Other Dec 2014 = 0.59 Mbpd; Dec 2015 = 0.54 Mbpd; down 50,000 bpd YOY

Figure 12 This group of S and E Asian producers has been trending sideways since 2010.  The group produced 7.69 Mbpd in December, down 100,000 bpd on the revised November figure. Note that Indonesia (an oil importer) has rejoined OPEC. The OPEC production numbers are reported ex NGL by the IEA and this has meant a 170,000 bpd drop in reported Indonesian production that contributes to the blip down on this chart.

Figure 13 N American production looks like it topped in April at 20.12 Mbpd:

      • USA Nov 2015 12.87 Mbpd; Dec 2015 12.76 Mbpd; down 110,000 bpd
      • Canada Nov 2015 4.52 Mbpd; Dec 2015 4.53 Mbpd; up 10,000 bpd
      • Mexico Nov 2015 2.63 Mbpd; Dec 2015 2.60 Mbpd; down 30,000 bpd

Group production down 130,000 bpd from November to 19.89 Mbpd in December. Group production down 230,000 bpd from the April peak (this is the more reliable statistic being less affected by monthly data revisions).

Figure 14 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. December production was 96.46 Mbpd down 740,000 bpd on the revised November figure (350,000 of that is down to November being revised up). July 2015 remains the IEA total liquids peak at 97.08 Mbpd. December production is down 620,000 bpd from that peak. Looking at the chart we see a production plateau forming. There is still a long way down to the long-term trend line.

Figure 15 Global stock changes reflect the imbalance between supply and demand. Surplus supply grew in 4Q 2015 at a rate of 1.8 mbps. Compare with my “forecast” made in December of 1.87 mbpd. The over-supply situation is likely to persist throughout 2016.

High Noon for the Oil Price

No one has ever been able to predict the oil price. The current situation is a balance between quite strong bull and bear signals.

On the bear side we know that:

  • The market will likely remain over-supplied throughout 2016.
  • Demand in Q1 and Q2 is cyclically weak.
  • Iran returning to full market will pour gasoline on the bonfire.
  • There are multiple signs of a slowing global economy, despite cheap energy.
  • There’s no sign yet (as of December 2015) of production falling significantly.

On the bull side we know that:

  • The oil price will definitely rise from current levels unless the global finance system fails.
  • Low price and low investment now, lays the ground for supply shortage in the years ahead.
  • Zero spare capacity will prime the market for volatility and price spikes to come.
  • The down trend in declining price tops has been broken and there are signs of price support at current levels (Figure 1).

On a one year time scale I believe the bear fundamentals sway the day. But the market rules, and the pricking of the recent trend in declining tops (Figure 1) combined with a strong price rally today (WTI up 9% on 3 Feb) may suggest that buyers now out number sellers.

Investors and speculators will expect the $26 lows to be tested. The fundamentals prevailing at that time will be crucial. A concern I have is that if oil rallies soon to say $60 then many inefficient producers may survive and then act as drag on price for years to come. The cost of new marginal supply is high as is the cost of maintaining social services in Saudi Arabia and Iraq.

Previous Editions of Vital Statistics

January 2015
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
August 2015
September 2015

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14 Responses to Oil Production Vital Statistics January 2016

  1. Rob says:

    When you say concerned many inefficient producers may survive do you mean offshore producers
    or shale gas oil sands.
    What price does offshore oil need for a stable future ?

    I understood the price shale gas needs to break even is coming down whereas offshore costs have risen.

    What future is there for UK Engineering Service industry

    • Euan Mearns says:

      I guess I mean both. In the UK we find politicians wanting to “save the industry” that overlooks the fact that the industry just had a 10 year stay of execution. If tranches of high cost production and ability to produce don’t get closed down then the whole industry may limp along for years.

      The problem boils down to over production of expensive resource and making a loss. Same thing happens in electricity. We have over-supply of high cost renewables that dumps the price leading to losses for all.

      The future of UK offshore engineering will be decommissioning.

      • cafuccio says:

        Nice connexion to be made between oil and electricity! But since wind and solar are sustained by FITs, they will eventually win? And what next?

        • robertok06 says:

          “But since wind and solar are sustained by FITs, they will eventually win? ”

          No way!… FITs cannot be applied forever… as soon as they fall under a given value the installation rate goes down dramatically… look at Germany, in 2015 they have installed only 1.4 GWp of PV, instead of the planned 2.5… and all that because the FIT Is nowadays much lower than the hefty 55 cEuro/kWh of 10 years ago.

          Intermittent renewables will soon hit the limit, here in Europe.

  2. Javier says:

    We have lost 0.6 Mb of world total liquids the last 6 months. This trend, despite Iranian increased production, is likely to continue and accelerate during 2016, so the loss of production in 2016 could be between 1-2 Mb of world total liquids. That can take care of the imbalance unless demand also goes down (global recession).

    In any case we are going to have a mid 2015 Peak Oil for quite some time to come. That’s already baked in the cake.

    • Ajay Gupta says:

      I’m thinking along the same lines but wondering what the effect of ramping up renewable production will be on oil consumption. Takes oil to make these things and we seem to be planning to build a lot more of it. I’m wondering if that will balance the global recession in terms of consumption.

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  4. Luís says:

    The situation regarding liquid petroleums:

    . On a monthly basis, extraction peaked last August at 80.5 Mb/d; September and October registered similar values at 80 Mb/d (last month of hard data).

    . Of the relevant petroleum countries, only two may have increase extraction since then: Russia and Iran. Regarding Russia this may be something in the order of 0.1 Mb/d or less.

    . USA, Canada, Nigeria, China, Mexico, Venezuela have likely reduced extraction since October (and possibly Iraq too).

    . Libya has been the stage of serious military attacks on petroleum infrastructure (by Daesh) that have reduced exports in the order of 0.2 Mb/d, with unknown impact on extraction.

    . Whatever happens now to petroleum prices, the majority of independent companies operating in the so called “shsles” of the US and Canada will go under throughout this year. They stopped drilling, therefore cash flow will inevitably disappear.

    . 100 000 jobs were lost in the petroleum in 2014; in 2015 this figure climbed up to 300 000; we shall how many in 2016. This is possibly the best indicator that there will be no soft recovery from this petroleum market.

    I remember the Road Runner cartoons. Once upon a time the coyote acquired a giant slingshot from ACME. HE installed it on the road and started pulling with his back; he pull and pull and pull until he could hardly hold it. When the road runner passed the coyote let go … and was propelled past the road runner and beyond, towards to the Moon.

  5. Askja Energy says:

    Spot on: “The oil price will definitely rise from current levels unless the global finance system fails.”

    Some thoughts on this: http://askjaenergy.org/2016/02/04/current-low-oil-prices-are-not-sustainable/

    • gweberbv says:

      How might very low costs for money and workforce in a recessive economic environment influence the costs for extracting oil? In other words, let’s say that investors get only maybe 2% to 3% on their investment (on are quite happy with that because their banks would charge them with 2% if they keep their money in cash) and oil workers get paid like plumbers, would that have a significant impact?

    • Roger Andrews says:

      Askja: A quote from your text:

      “In addition we must remember that many oil-producing states need high oil price to be able to balance their state budget. This factor may and will influence oil production.”

      According to the article linked to below:

      “The most facile uses of fiscal break-evens — particularly to predict short-term oil price movements — are now discredited. And, while fiscal break-evens do have valuable uses, people are still relying excessively on them to anticipate political and economic developments in oil exporting countries — and even to anticipate what will happen to the oil price over the long run. Perhaps most striking, then, is how shaky these numbers are …”


      After looking at the numbers I’m inclined to agree.

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