US: shale oil production declines faster than expected

US, WASHINGTON (ORDO NEWS) — “If you are a supporter of markets, then reductions will occur automatically,” said US President Donald Trump about a possible reduction in US oil production in early April. Then he set up Saudi Arabia and Russia to restore the OPEC + alliance and begin new reductions.

This would help maintain oil prices that are destroying US shale oil production. Following the conclusion of a new deal with OPEC +, Saudi Arabia is cutting oil production and exports in June in order to “stabilize” the market – or save oil revenues and the economy.

But American shale producers are cutting oil production much faster and deeper than analysts had originally expected.

US oil producers helped OPEC + (which they are not a part of) coalition faster than others to cut global oil supplies amid a sharp drop in US production, according to Julian Lee, an oil strategist at Bloomberg.

US Energy Information Administration data indicate that production in the US has been declining over the past two months. But according to EIA weekly estimates, the decline in production over the past few weeks has been much stronger, Lee says.

Analysts expect US shale producers to cut production in Q2 due to low demand, high reserves and low oil prices. Many of them expect deeper cuts than EIA analysts expect.

According to the latest EIA data, production was 11.6 million barrels per day for the week ending May 8. But with the adjustment of estimates – unaccounted for oil – it is almost -1 million barrels per day, the most negative correction factor for oil production of all time. Lee from Bloomberg believes that this could mean that the EIA either overestimates US production at 914,000 barrels per day for the week until May 8, or underestimates demand, or something in between.

If “unaccounted” oil for 914 thousand barrels per day is relevant to the proposal, this suggests that US oil production was not 11.6 million barrels per day for the week until May 8, but 1 million barrels per day lower , about 10.6 million barrels per day.

Analysts and industry executives forecast more cuts in the US this quarter than EIA weekly estimates suggest.

Production stops throughout the US and Canada total 3.5 million and 4.5 million barrels per day, Jeremy Goebel of Plains All American Pipeline said in early May.

“This is May, June, possibly July. We forecast a period of decline in June and July, and then some recovery in activity in August,” Goebel said.

According to Rystad Energy’s analysis last week, in June, the total reduction in the United States could be at least 2 million barrels per day.

“Actual production cuts are probably more significant. They can occur not only as a result of shutdowns, but also due to the natural reduction of existing wells, given that the number of new wells and drilling volumes is reduced,” the energy research company said in a statement.

“According to various sources, US producers, including oil companies, have already reduced production by at least 1.5 million barrels per day in the second quarter of 2020. This will probably be achieved by shutting down more expensive wells, partially reducing the production of individual wells and delaying the “commissioning” of wells,” the OPEC monthly oil market report said last week.

According to drilling rig counts, drilling has been suspended. According to Baker Hughes, the number of oil rigs in the week before May 15 decreased by 34 drilling rigs, the total number was only 258, -544 drilling rigs per year. This is the smallest number of operating oil rigs since mid-2009.

In North Dakota, the number of active drilling rigs as of May 17 was only 13. This is five times less than 66 drilling rigs on the same day a year ago, according to the North Dakota Department of Mineral Resources.

Deep cuts in production and low oil prices suggest that a number of small shale producers burdened with debt will not survive this decline. But those who survive will get stronger.

Accelerated production cuts in the second quarter due to US shale oil production would accelerate market rebalancing and help OPEC + coalition “stabilize the market”. In other words, they would raise oil prices.


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