Oil Production Vital Statistics October 2015

The “big news” this month is that the banks granted over leveraged, loss making shale oil drillers a stay of execution by continuing to provide credit lines. Consequently, there was no major move in US oil drilling or production though both are trending down. Elsewhere, the story is one of production plateaus and stabilisation of rig counts. The modest production rises and falls detailed below are simply noise on these production baselines.

Against this backdrop of no news, the oil price traded sideways in October. OPEC countries, Russia and International Oil Companies are all losing billions and look set to continue doing so throughout 2016 as over-supply now looks set to continue until early 2017. The situation is one of stalemate as opposed to checkmate.

  • World total liquids production down 80,000 bpd to 96.56 Mbpd.
  • OPEC production down 90,000 bpd to 31.72 Mbpd (C+C)
  • N America production down 220,000 bpd to 19.46 Mbpd.
  • Russia and FSU up 60,000 bpd to 13.94 Mbpd
  • Europe up 140,000 bpd to 3.30 Mbpd (compared with August 2014)
  • Asia down 30,000 bpd to 7.91 Mbpd.
  • Middle East rig count is stable. The international oil rig count has stopped falling. The US oil rig count has turned down again.

Figure 1 The oil price has had a quiet month trending sideways with Brent either side of $50. The head and shoulders chart pattern observed last month has not yet been completed.  To complete the pattern the oil price needs to test the recent lows ($38.22 for WTI and $41.59 for Brent, both on August 24th). Market stalemate has not yet been broken.

The September 2015 Vital Statistics are here. EIA oil price and Baker Hughes rig count charts are updated to end October 2015, the remaining oil production charts are updated to September 2015 using the IEA OMR data.

Figure 2 The bigger picture shows more clearly the indecision in oil price direction. One outcome may be that the oil price neither rises nor falls dramatically from current levels and that the world producers may have to adapt to a new reality of $50/bbl. The arguments against this are 1) OPEC producers and Russia cannot survive with this price without slashing welfare programs and 2) OECD oil companies cannot survive and maintain current production levels at this price. Marginal barrels cost more than $50 to develop and produce. 

Figure 3 October has seen stuttering rather than decisive action on the US oil rig count. The minor recovery staged in August peaked at 675 units on 28 August. In the two months since, oil directed rigs have dropped 97 to 578 on 30 October. 600 rigs are roughly what is required to compensate for declines and to maintain US production at current levels. Should the decline in oil directed drilling continue, then US production will inevitably follow, though not as rapidly as many may presume with already drilled wells and improved efficiency taking up some of the slack. Credit redeterminations for US shale drillers were largely completed in October and the bloodbath that was expected did not materialise with banks largely continuing to lend money to the sector. This does not resolve the problem of insolvency in shale drilling, it merely delays the day of reckoning.

Figure 4 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. Gas drilling has flatlined at around 200 units. The total rig count was 775 on 30 October compared with a post-crash low of 876 seen on 20 June 2009. Hence, the current slump is already worse than the post-crash slump and there is no respite in sight.

Figure 5 The near-term peak in US production was 13.24 Mbpd in April 2015.  The August figure was 12.69 Mbpd, down 550,000 bpd. In my post on US Shale Oil: drilling productivity and decline rates I estimated that LTO production may fall by 830,000 bpd with current rig count and drilling efficiency. The oil rig count is once again falling slowly, but the anticipated rout in drilling and production has not yet taken place. It now looks like its going to be a long drawn out affair that will spread pain throughout the whole oil production sector. Low oil and energy prices are of course good for consumers and economic growth. It is, however, a concern when the engine of growth – energy production – becomes sick.

Figure 6 OPEC production stands at 31.72 Mbpd up 90,000 bpd on August. This level was first attained in the summer of 2008, at the end of the great energy squeeze in the lead up to the financial crash. This appears to define a plateau level in OPEC production. Production from Iraq has been flat for 4 months at 4.2 Mbpd. It is difficult to say if there is more growth to come.  Libya is stable, bumping along bottom. And with sanctions lifted in Iran, production from that country may rise by 800,000 bpd in 2016. Saudi Arabia claims to have 2.2 Mbpd spare capacity, but that is likely to be sour heavy crude that does not currently have a refining market. All other OPEC countries are pumping flat out (see Figure 7). At face value, the return of Iran will see OPEC production rise from current levels, but history teaches us that Saudi Arabia, and other Gulf states, may cut production to make room for new OPEC supply and that political turmoil is never more than a heartbeat away and may lead to involuntary production cuts.

Figure 7 OPEC booked spare production capacity stands at 3.27 Mbpd with 2.06 in Saudi, 0.72 in Iran and 0.49 in the rest.

Figure 8 In September Saudi production fell by 80,000 bpd to 10.20 Mbpd. There has been no move to increase drilling. NZ = neutral zone which is neutral territory that lies between Saudi Arabia and Kuwait where production from the Wafra heavy oil field is shared equally between them. The NZ used to pump at over 500,000 bpd in 2013, but this has now effectively fallen to zero. The heavy oil in the Wafra reservoir is helped to the surface by steam injection. It seems that this is not economical sub $60.

Figure 9 The ME OPEC oil rig count is on a rising trend with operational cycles superimposed. For four months the total rig count for these four countries has been stable at 147 units.

Figure 10 The slide in international oil rigs appears to have stalled for the time being showing little change for 5 months. This applies to each of the five regions plotted. Total international rigs are up 5 to 871. This number is still substantially above the 2008 peak of 832 units (dashed line). While the international oil industry is racking up huge losses, the level of drilling activity still exceeds the previous high of 7 years ago.

Figure 11 Russia and other FSU produced 13.94 Mbpd in September, up 60,000 bpd on August but little changed for 3 years. Russian production was 11.08 Mbpd in September, up 40,000 bpd. Other FSU was 2.86 Mbpd, up 20,000 bpd.

Figure 12 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 Sep 2014, European production is up 140,000 bpd to 3.3 Mbpd. Declining North Sea production was one of the drivers behind the rise in oil prices since 2002. Arresting and reversing those declines has removed that driver.

  • Norway Sep 2014 = 1.78 Mbpd; Sep 2015 = 1.88 Mbpd; up 100,000 bpd YOY
  • UK Sep 2014 = 0.81 Mbpd; Sep 2015 = 0.88 Mbpd; up 70,000 bpd YOY
  • Other Sep 2014 = 0.57 Mbpd; Sep 2015 = 0.54 Mbpd; down 30,000 bpd YOY

Figure 13 This group of S and E Asian producers has been trending sideways since 2010.  The group produced 7.91 Mbpd in September, down 30,000 bpd on the revised August figure.

Figure 14 N American production looks like it topped in April at 20.12 Mbpd:

  • USA August 2015 12.74 Mbpd; Sep 2015 12.69 Mbpd; down 50,000 bpd
  • Canada August 2015 4.34 Mbpd; Sep 2015 4.13 Mbpd; down 210,000 bpd
  • Mexico August 2015 2.60 Mbpd; Sep 2015 2.64 Mbpd; up 40,000 bpd

Group production down 220,000 bpd from August to 19.46 Mbpd in Sep. Group production down 660,000 bpd from the April peak.

North American production rose an astonishing 6 Mbpd between 2011 and 2015. This is the principal cause of global over-supply. Production has now declined 0.66 Mbpd, but there is still a long way to go before supply and demand come back into balance (Figures 16 to 18).

Figure 15 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. September production was 96.56 Mbpd down 80,000 bpd on the revised August figure.  Global total liquids is down 520,000 bpd on the July peak. Global total liquids production rose above the long term trend line in mid-2014 resulting in the oil price rout.

Figure 16 Quarterly supply and demand data from the IEA. From the first Q of 2014 an over-supply situation has persisted.

Figure 17 I believe the IEA monitor global stocks, stock change and production. Production (supply in Figure 16) less stock change then equals demand (Figure 16). According to the IEA figures a total of 839 million barrels of surplus production have gone to storage since 1Q of 2014, worth $83.9 billion @ $100/bbl and worth $42 billion @ $50/ bbl. The IEA now see the over-supply situation persisting throughout the whole of 2016 (Figure 18).

Figure 18 The IEA view from the October 2015 OMR. Without Iran, the IEA sees flat supply to end 2016 and with Iran (dashed line) supply ticking up by about 720,000 bpd that would maintain the over-supply situation throughout 2016. Even without Iran, over-supply persists to the end of 2016.

Concluding Comments

OPEC, Russia and the FSU, SE Asia and Europe are all producing at plateau levels with no significant moves up or down in recent years. The only region with significant trend is N America where declines of 660,000 bpd from the April peak are modest compared with the production growth that preceded the peak and current over-supply running at 1.5 Mbpd.

One possible scenario is that, despite racking up huge losses, all the players hang tough for another year awaiting demand growth to eradicate the over supply situation. A second scenario is that OPEC + Russia cut production by 2 Mbpd sending the oil price back towards $100 / bbl. A third scenario is that US shale drillers succumb to gravity with drilling and production going into steep decline. And a fourth scenario is that momentous global events eventually catch up with production in Iraq,  Saudi Arabia and Algeria sending production into a tail spin and the oil price spiralling upwards. It has always been impossible to forecast the oil price and it still is.

Previous Editions of Vital Statistics

January 2015
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
August 2015
September 201

 

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28 Responses to Oil Production Vital Statistics October 2015

  1. Euan: I find it difficult to comment on your “Vital Statistics” posts because they’re so complete, well presented and concisely explained that I usually can’t think of anything to comment on. This time, however, I do have a question (actually two). According to IEA (Figure 17) 839 million bbl of oil has gone into storage since 1Q2014. Where is all this surplus oil being stored, and how close is the world to running out of storage capacity? I’ve looked for numbers on world oil storage capacity but haven’t been able to find any.

  2. Ed says:

    Who will fold first and cut production? US, Saudi Arabia or Russia ? Now look at the main players in the geopolitical game in Middle East and Syria in particular. They are US, Saudi Arabia and Russia. Coincidence ?

    ps I said, many months ago on this blog that the US government will underwrite the loses of the US shale industry. Only time will tell if I’m correct.

  3. Bernard Durand says:

    Euan, it would be useful to follow also the evolution of petroleum world exports, if possible.

  4. Peter Corish says:

    Bernard
    The website mazamascience.com charts the BP data by country, region and globe and does so for multiple energy sources

  5. A C Osborn says:

    This is an interesting article for all those peak oil/energy doomers
    http://www.thetimes.co.uk/tto/business/industries/naturalresources/article4602912.ece

    We are swimming in it, “Taking into account all accessible forms of energy, including nuclear, wind and solar, there are enough resources to meet 20 times what the world will need until 2050, BP says in the report.
    See more at: http://www.thegwpf.com/global-oil-supplies-to-double-by-2050/#sthash.fObBPaaE.dpuf

  6. Skeboo says:

    Hello Euan,

    What are the main reasons that explain how the decline in the North sea has been arrested?

    • Euan Mearns says:

      There is one over riding reason and that is 5 years of sustained record high price that brought about record investment in mainly post-mature assets. The subsidiary technicalities feeding into this over-riding reason area 1) postponed decommissioning, 2) facilities refurbishment, 3) well work-overs that enhance production, 4) infill drilling that enhances production, 5) subsea tiebacks of near field satellites, 5) horizontal drilling, 6) new high-cost field developments. There’s probably a lot more detail, but that is the main gist. Prolonged low price will see all this unravel, but it will take years to happen.

  7. “Russia cannot survive with this price without slashing welfare programs” – Russians get 62 rubles for each dollar now, twice as much as two years ago. As long as they sell oil for dollars and then exchange to rubles, they maintain their ruble income level stable. Not really sure if this is happening.

  8. Joe Solari says:

    Euan,

    I thought you may find these charts of interest http://cuxllc.com/?p=47

    This is some work we are doing to quantify and visualize the productivity of rigs that are operating. A big part of the disconnect is the physical rig count is only a portion of what brings a well to production and determines its production. All time lows in rigs don’t mean what they mean because it’s like comparing the value of a dollar today versus ten years ago.

    Our work leeds us to believe that prices will be under pressure as the rig productivity offsets physical count drops and some plays are increasing rigs on a production weighted basis.

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