Looking only at oil production in the Lower 48 states (excl. Gulf of Mexico), Rystad Energy observes 120 kbbl/d higher output in August 2016 compared to EIA’s latest August 2016 STEO. Nearly 70 rigs in the Permian Basin have returned to operation since early May and current horizontal drilling activity in West Texas and New Mexico is comparable to the levels observed in 2Q-4Q 2015. Additional completion works on the drilled uncompleted (DUC) wells have also been initiated and new volumes coming from the Permian Basin are sufficient to balance the decline from more mature liquid plays in September-October 2016.
Contrary to the recovery in the Permian Basin, major operators in Bakken and Eagle Ford have not yet accelerated fracking activity and several companies have called for a WTI price level of 55-60 USD/bbl in order to do so. However, as base production in these plays gets more mature, new activity in the Permian Basin will not only balance the decelerating decline in other plays, but will restore the growth trend in U.S. onshore oil production in November and December 2016.
The modest decline pace of US onshore oil production from June to August was masked by the summer maintenance on major Alaska fields and several disruptions in the Gulf of Mexico (including unplanned outages in July along with massive shut-ins due to the Tropical Depression Nine threat in late August). These outages caused more severe decline in the total US oil production than implied by the natural decline in the Lower 48 states.
Rystad Energy foresees a continuation of upward revisions to EIA’s short-term US oil production outlook in the upcoming months, which could slow down oil price recovery despite the counter-seasonal global stock draws in 2Q-3Q 2016.
An upward revision of 200-240 kbbl/d has already been observed for 4Q16 Lower 48 oil production in the August 2016 STEO. However, we still observe that the current exit-2016 projections for Lower 48 oil production are about 450 kbbl/d below Rystad Energy’s base case scenario. Even with zero shale well completions between September and December 2016, Rystad Energy forecasts that Lower 48 oil production exits 2016 at 6.07 mmbbl/d, which is just 90 kbbl/d below the forecast observed in the current STEO. Thus, further STEO upward revisions in the coming months are inevitable and the market should take notice. Rystad Energy expects the revisions to happen gradually over the next five to six months as more official production data becomes available and it becomes evident that the trend in oil production has already reverted.