Rystad: Resilient US oil production will prompt additional volatility in the market

Upward revisions to EIA US oil production figures in the coming months could prompt additonal volatility in the oil market, noted Rystad Energy.

Forecasts in Rystad Energy's October Global Oil Market Trends Report show exit-2015 US oil production at 9.3 million barrels per day, which is 300 thousand barrels per day higher than the prevailing EIA forecast. The difference between the two forecasts increases to 500 thousand barrels in June 2016.

Rystad Energy's view differs from EIA’s monthly US Lower 48 states onshore oil production forecast. Recently conducted research on US shale fracking activity, which is closer to actual production than drilling, shows that US horizontal oil production is more resilient and declining less rapidly than suggested by alternative models based on drilling activity as the only driver of well start-ups.

"The key factor in the resiliency of US shale output is the dramatic reduction in first month's decline in production from already-producing wells," says Bjørnar Tonhaugen, VP Oil & Gas Markets at Rystad Energy. Across all US shale liquids plays, legacy production now declines 250 thousand barrels per day in the first month, while in January 2015 the decline was 350 thousand barrels per day. Thus, fewer wells are needed to keep production flat each month than at the start of 2015.

Conventional non-shale onshore, the remaining part of US Lower 48 oil production, accounts for 3 million barrels per day of US oil production in 2015. Rystad Energy sees an almost 50% increase in plugging and abandonment activity in 2015 across major states with large conventional activity such as Texas and California.

"Most plugged wells produced less than 15 barrels per day which means that higher abandonment activity has a limited effect on the US supply response. We estimate an additional 50 thousand barrels per day downside risk to US oil production in 2015 if the growth in plugging and abandonment were to continue," says Bjørnar Tonhaugen. "Supply response is underway in non-OPEC countries through increased field decline and project delays. However, if the market expects the response to primarily come through a dramatic slowdown in US oil production, we warn of renewed volatility in the market as EIA's monthly figures are revised higher."



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