Oil Production Vital Statistics September 2015

With momentous events unfolding on the World stage, the oil market continues to evolve at a glacial pace. Global total liquids production was 96.29 Mbpd in August, down 630,000 bpd from the June peak. But with oversupply running at over 3 Mbpd during the second quarter, there is still a long way to go to rebalance the system. Production in OPEC, Europe, Russia and E Asia is stable with no sign of turning down. In fact, Norway and the UK appear to be skipping annual maintenance this summer and European production is up 420,000 bpd compared with a year ago. The only region showing a marginal production decline is N America where production has fallen 580,000 bpd from the April peak.

I believe the stalemate will be broken in October. The oil price chart is forming a “head and shoulders” pattern, and if the price tests the recent August lows the moment of truth will arrive. Barring major events, it is difficult to imagine the price rising from here, near term. I therefore anticipate the price to break to the low side with significant losses. This is required to restore balance to the system.

  • World total liquids production down 570,000 bpd to 96.29 Mbpd.
  • OPEC production down 220,000 bpd to 31.57 Mbpd (C+C)
  • N America production down 220,000 bpd to 19.48 Mbpd.
  • Russia and FSU down 50,000 bpd to 13.88 Mbpd
  • Europe up 420,000 bpd to 3.28 Mbpd (compared with August 2014)
  • Asia up 60,000 bpd to 7.93 Mbpd.
  • Middle East rig count is stable. The international oil rig count has stopped falling while the US oil rig count is showing signs of turning down again.

Figure 1 The oil price now appears to be forming a classic “head and shoulders” chart pattern. This in itself is not yet diagnostic of any future trend. 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). This I expect will happen in October. If these lows break down it can be expected that the price will plunge much lower. If, on the other hand the lows provide support this should indicate that the lows are in and a price recovery may begin. Given that the gross oversupply situation persists, my expectation is for the former outcome. A total capitulation is required to rectify the oversupply status.

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

Figure 2 The bigger picture shows more clearly how the January / March lows have failed. If the recent August lows are tested and fail the price may head much lower, to the vicinity of $20 for WTI.

Figure 3 The weak recovery in US oil rig count has reversed with the total down 35 for the month. The gas rig count appears stable plotted at this scale, but the bigger picture shows that the gas rig count is on the skids and continuing to slide, currently below 200 (Figure 4). The oil rig count will need to fall a lot further to seriously dent US oil production.

Figure 4 At this scale it is clear that the gas rig count continues to slide. The oil rig count may be about to resume its slide. One cause could be drillers running out of cash.

Figure 5 I think it is now safe to assume that the US oil production peak was in April 2015 at 13.24 Mbpd.  The August figure was 12.66 Mbpd, down 580,000 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. There may not be much more US decline to come with current rig count although shutting down stripper wells will remove more oil from the US market. The anticipated collapse in US production may soon be over and is rather unspectacular. 

Figure 6 OPEC spare capacity stands at 3.23 Mbpd and has been declining steadily in recent months. The IEA have booked 730,000 bpd spare capacity for Iran in anticipation of sanctions being lifted. And they book 1.96 Mbpd for Saudi Arabia which is likely heavy sour crude that does not currently have a refinery market. Apart from those two countries the rest of OPEC is pumping flat out.

Figure 7 OPEC production plus spare capacity in grey. The chart conveys what OPEC could produce if all countries pumped flat out although, as stated previously, the status of Saudi spare capacity needs to be questioned. OPEC crude oil production stood at 31.57 Mbpd in August, down 220,000 bpd on July. The biggest losers are Saudi Arabia, Iraq and Angola. Production + capacity stands at 34.80 Mbpd and has bumped along this plateau since 2009.

Figure 8 Saudi production fell by 100,000 bpd to 10.30 Mbpd in August. It is to early to say if this is noise, or whether the Saudi reservoirs are struggling to maintain production. 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 is showing signs of slowing with a reversal this month. Total international rigs are up 17 to 866. The recent peak in international oil rigs was 1080 in July 2014. The bigger picture is that the international drilling rig fleet has grown by over 400 units since 1997.

Figure 11 Russia and other FSU oil production remains rock steady effectively glued to 14 Mbpd. Russian production was 11.02 Mbpd in August, up 20,000 bpd on a revised July figure. Other FSU was down 70,000 bpd at 2.86 Mbpd after revisions. Group production down 50,000 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. Looking at the chart, it appears that Norway is skipping maintenance this year and looking at the production figures (below) it appears that the UK is also doing the same. Compared with August 2014, European production is up 420,000 bpd.

  • Norway Aug 2014 = 1.72 Mbpd; Aug 2015 = 1.88 Mbpd; up 160,000 bpd YOY
  • UK Aug 2014 = 0.58 Mbpd; Aug 2015 = 0.86 Mbpd; up 280,000 bpd YOY
  • Other Aug 2014 = 0.56 Mbpd; Aug 2015 = 0.54 Mbpd; down 20,000 bpd YOY

Figure 13 This group of S and E Asian producers has been trending sideways since 2010.  The group produced 7.93 Mbpd in August, up 60,000 bpd on the revised July figure.

Figure 14 N American production looks like it has topped:

  • USA July 2015 12.77 Mbpd; Aug 2015 12.66 Mbpd; down 110,000 bpd
  • Canada July 2015 4.31 Mbpd; Aug 2015 4.20 Mbpd; down 110,000 bpd
  • Mexico July 2015 2.61 Mbpd; Aug 2015 2.62 Mbpd; up 10,000 bpd

Group production down 220,000 bpd from July to 19.48 Mbpd in August. Group production down 580,000 bpd from the April peak.

Figure 15 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. August production was 96.29 Mbpd down 570,000 bpd on the revised July figure.  Global total liquids is down 630,000 bpd on the June peak. Over-supply was running at over 3 Mbpd. There is still a long way to go to rebalance the system.

Figure 16 To understand this chart you need to read my earlier posts [1, 2]. The design of the chart has been modified into time slices as presented in Oil Price Crash of 2014 / 2015 Update.  As suggested last month, recent price action is taking this chart down. There are growing hints that weak demand and stubborn high supply are both involved.

Other supply and demand charts will be updated next month when the third quarter data are in.


[1] Energy Matters The 2014 Oil Price Crash Explained
[2] Energy Matters Oil Price Scenarios for 2015 and 2016

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16 Responses to Oil Production Vital Statistics September 2015

  1. Tim says:

    Euan. Did the $20 price come from GS or do you project it somehow from the chart? Why not $10 or $30?

    • Euan Mearns says:

      Tim, it comes from this post:


      and chart of deflated prices:

      When this type of crash has happened before, for example 1998, the bottom was of the order $20 – but that is an annual average. At the end of the day it is guess work. If we get close to that territory then market forces take over with the hands of traders forced by banks. Think of all that oil in storage that someone paid $100 for.

  2. “A total capitulation is required to rectify the oversupply status.”

    Euan: What are your best guesses as to a) who is going to capitulate, b) when and c) how total the capitulation might be?

    Great graphics, incidentally.

    • Euan Mearns says:

      Good questions Roger. a) Who? The possibility remains that OPEC + Russia decide to cut 3 Mbpd by Christmas bringing the crisis to an end. And believe me it is a crisis for high cost non-OPEC producers. The non-Gulf OPEC members must now be in a world of hurt. I’d be most concerned about Algeria on Europe’s door step. Failing that then OECD production must fall dramatically and that means a decimation of the OECD oil industry like happened post-1998. There is already talk of 100 North Sea installations being decommissioned.

      b) When? If OPEC throw in the towel, it could happen quickly. Failing that it is a drama that may be payed out over another couple of years. Much depends on what happens to price. Another sharp fall in price, which I expect to happen, will accelerate the whole process.

      c) How total? With an OPEC capitulation it is in effect a return to BAU – “we thought about going to war but then changed our minds”. If it is left up to the market to remove 3 Mbpd OECD production, then half the N Sea gets closed down, blood bath in shale patch as oil rig count heads for 100. The large independents get slaughtered and taken over. Some large multi-nationals disappear, e.g. BP (though they sold a lot of assets at top $ before the crash). Large service companies slash staff and capacity. Its all happened before.

      One problem the smaller companies have in this environment is hedging. In the 1990s, a Norwegian independent called Saga Petroleum was forced by banks to hedge at something like $12. Price then went to $20 and they went under.

      One year into the crisis, looking at the production charts, its hard to see there is much going on.

      • Roger Andrews says:

        Euan: Here’s how I see it.

        The shale producers, the North Sea producers etc. might be driven out of business by low oil prices but they aren’t going to “capitulate”.

        Neither are the smaller cash-strapped OPEC producers like Algeria and Venezuela. They have to keep the oil flowing no matter how low the price gets.

        Russia is a question mark, but I somehow don’t see Putin capitulating either.

        The only people who are in a position to capitulate are the Saudis and maybe some of the other ME OPEC countries, but so far they have shown no signs of doing so.

        It looks like the battle is going to be fought to the bitter end.

        • Ed says:

          Awesome web site. Venezuela – sad economic story, I also read that exports may have fallen to 1.7 million barrels per day, drilling is down, and more decline possible. But credable information on this country is very hard to come by. What do your sources say?

          • Euan Mearns says:

            Oil rig count for last 6 months (Baker Hughes):

            61, 54, 67, 65, 70, 72

            Oil production for Jun, Jul, Aug (IEA):

            2.42, 2.42, 2.40

            Not much sign of the oil industry being abandoned. But I have heard the country is falling apart.

  3. Rob says:

    Is it game over in Aberdeen or is there enough Oil for one last boom
    when prices recover and what price will that need to be.

    • Euan Mearns says:

      I wouldn’t say its game over, but I think its safe to say that the best of times are past. There is a difference between Aberdeen and The North Sea. With a strong recovery in price, the international service sector operated from Aberdeen may recover strongly. But another year of low price may see the N Sea die with large numbers of fields decommissioned. There have been 65,000 oil based redundancies so far throughout UK. Aberdeen is not a happy place right now – though the sun has been shining all week 🙂

  4. Rob says:

    The problem with international service sector is the stiff competition from cheaper labour from India and the far east may mean Aberdeen Engineers priced out of the market. All the major players have back door offices offering design services overseas. I can only see more a more and more leaking away until Aberdeen becomes a shell for head office offering project management type operations only.

  5. Aslangeo says:

    A few interesting things on the US shale sector

    Art Berman has looked at the publicly available finances of three main US shale companies, Pioneer (Permian focus), EOG (Eagleford focus) and Continental (Bakken Focus)

    see http://www.artberman.com/rig-productivity-is-a-red-herring/

    This analysis shows that these companies (all are well run, the previous CEO of continental was once my team lead when I was a graduate trainee – a very clever bloke) but are basically losing money on every barrel that they are currently producing – also note that the prices realised per boe are about $30 due to large parts of their production being gas and NGL . Note also in teh case of Pioneer and EOG the Capex basically maintains production (no growth)

    More globally the only companies with positive cashflows at $50 are Gazprom, Lukoil and just about Rosneft. The western majors would be close to cashflow positive if they would cut dividends and buy backs which they would be prepared to do after eating their own children

    A certain proprietary industry consultancy has also had a look at this and has a more upbeat message with most companies while cashflow negative may continue for a considerable time buoyed up by loans, hedging (due to fall of a cliff in 2016) and possible asset sales (in a saturated market with a wide discrepancy between asking prices and what people are prepared to pay. They feell that Capex cuts of 20-40 % on 2015 ( i.e halving from 2014) is a likely response.

  6. Bernard Durand says:

    Euan, is the steep fall of oil price really due to an excess of offer on demand or to a quick increase of the dollar index following the end of QE in the US? Would this be the right explanation, we could also forecast a further increase of the dollar value due to an increase of the US interest rate, resulting in a further fall of oil price ( and also big troubles in the world economy, as said recently by FMI.

    • Euan Mearns says:

      Bernard, Figures 15 and 16 tell their own story. No doubt that financial engineering is one variable that counts. And if interest rates go up, that will kill some demand and send price further down – this may well correlate with a change in the $ index. Higher US rates will also kill some producers and supply too. But if OPEC cut 3 Mbpd production, the price would go up. The way to test this is to look at oil price in € and £. I don’t have time to plot this today. But its maybe a new chart to include in future.

  7. Huckleberry Finn says:

    Euan you re hallucinating if you think current oversupply is 3 Million barrels per day.
    3 million barrels per day right now suggests that mismatch was even higher in December 2014 since demand has increased faster than supply decline since then.
    Even if we then use the average of 3 Million barrels per day mismatch then Inventories should have built at 3 Million X 275 days =825 Million barrels.
    Assuming US with about 1/4th the world’s consumption and inventories had a proportionate response, it would be expected that US inventories from December 31st Built by 210 Million barrels plus. But actual increase in total commercial inventories was about a 1/3rd of that.
    So what you ned to do is point out who is hoarding the remaining 700 Million barrels.

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