Patti Domm
he global oil glut is expected to get much bigger before it's over, keeping pressure on oil prices well into next year.
Companies like ConocoPhillips and Chevron are reducing spending on new projects, but the impact of already planned increases in U.S. production into the first half of the year is likely to keep the world well supplied before the flow of new supply starts to slow in the second half of the year.
Besides shale production, U.S. Gulf of Mexico production is also expected to increase with new projects coming on line. Within a year, the projects will take U.S. Gulf production from 1.3 million barrels to roughly 1.6 million barrels a day.
"It's not like the supply reaction is instantaneous. It
takes time to wind these things down," said John Kilduff of Again
Capital. "I wouldn't expect a decrease in the rate of (production)
growth until next year at the earliest."
The U.S. Energy Information Administration on Tuesday cut its forecast for daily U.S. production by another 100,000 barrels, to 9.3 million. That follows a reduction in its forecast of 100,000 barrels per day last month. The U.S. produced 9.08 million barrels a day in the week of Nov. 28 and has been producing over 9 million barrels a day for the past month.
The government's forecast for 2015 is now below some private analysts' assumptions that oil production can continue to grow at a higher rate of anywhere from 500,000 to more than 1 million barrels per day next year, depending on oil prices.
The EIA on Monday issued a new report on U.S. oil production showing the increase in production in the three main shale plays—Bakken, Permian and Eagle Ford—is growing by more than 100,000 barrels a day in December over November, and is expected to increase at about the same rate in January.
West Texas Intermediate was trading slightly above $63 per barrel Tuesday, after a steep selloff Monday, and Brent was trading at $66.07 per barrel.
Read MoreU.S. energy is growing - and so is U.S. 'power'
"It's (WTI) going to continue to slide on down to $60," said Andrew Lipow, president of Lipow Oil Associates. "There's just simply lots of oil out there, and all these lower prices make all these OPEC members want to produce their maximum rates to get more revenue. I think as Russia slides into recession, we're going to see them reduce their domestic consumption and put more on the world market."
Kilduff said production growth won't begin to slow until the second quarter at the earliest and prices could get very low, falling more with lower demand expected at the end of winter.
"Next year, we could see the low $50s (for WTI) in the late first quarter, second quarter time period., with the slack demand and the beginning of the supply response," he said.
Morgan Stanley this week put a target of $70 a barrel on Brent for next year. It also warned that Brent could sink in a worst-case scenario to $43 per barrel in the second quarter before recovering to only $48 in the third quarter.
Read MoreOPEC is broken: Dennis Gartman
Kuwait said it sees oil at $65 a barrel for the next six to seven months, and Saudi Arabia has reportedly said it expects a floor of $60 per barrel in Brent.
Analysts say the lower oil prices go, the harder it will be to recover if producers keep pumping. But ultimately, they say it should stabilize and in two years, the world may well be somewhat short of oil due to the projects that are now being shut down and delayed.
The EIA data also showed a clear trend of efficiency and enhanced production in individual shale wells. For instance, the EIA showed new well oil production per rig in the Bakken is expected to rise to 550 barrels per day next year. "As recently as June, they were only producing 500 barrels a day," Kilduff said.
Read MoreOil war is sticky, but OPEC may be forced to act
Bakken rigs tell a similar story to other major shale plays. The industry is deploying technology to improve production, a key factor in the surprising rise in U.S. production. New well oil production in the Bakken was just 300 barrels a day in early 2013, according to EIA.
The U.S. Energy Information Administration on Tuesday cut its forecast for daily U.S. production by another 100,000 barrels, to 9.3 million. That follows a reduction in its forecast of 100,000 barrels per day last month. The U.S. produced 9.08 million barrels a day in the week of Nov. 28 and has been producing over 9 million barrels a day for the past month.
The government's forecast for 2015 is now below some private analysts' assumptions that oil production can continue to grow at a higher rate of anywhere from 500,000 to more than 1 million barrels per day next year, depending on oil prices.
The EIA on Monday issued a new report on U.S. oil production showing the increase in production in the three main shale plays—Bakken, Permian and Eagle Ford—is growing by more than 100,000 barrels a day in December over November, and is expected to increase at about the same rate in January.
West Texas Intermediate was trading slightly above $63 per barrel Tuesday, after a steep selloff Monday, and Brent was trading at $66.07 per barrel.
Read MoreU.S. energy is growing - and so is U.S. 'power'
"It's (WTI) going to continue to slide on down to $60," said Andrew Lipow, president of Lipow Oil Associates. "There's just simply lots of oil out there, and all these lower prices make all these OPEC members want to produce their maximum rates to get more revenue. I think as Russia slides into recession, we're going to see them reduce their domestic consumption and put more on the world market."
Kilduff said production growth won't begin to slow until the second quarter at the earliest and prices could get very low, falling more with lower demand expected at the end of winter.
"Next year, we could see the low $50s (for WTI) in the late first quarter, second quarter time period., with the slack demand and the beginning of the supply response," he said.
Morgan Stanley this week put a target of $70 a barrel on Brent for next year. It also warned that Brent could sink in a worst-case scenario to $43 per barrel in the second quarter before recovering to only $48 in the third quarter.
Read MoreOPEC is broken: Dennis Gartman
Kuwait said it sees oil at $65 a barrel for the next six to seven months, and Saudi Arabia has reportedly said it expects a floor of $60 per barrel in Brent.
Analysts say the lower oil prices go, the harder it will be to recover if producers keep pumping. But ultimately, they say it should stabilize and in two years, the world may well be somewhat short of oil due to the projects that are now being shut down and delayed.
The EIA data also showed a clear trend of efficiency and enhanced production in individual shale wells. For instance, the EIA showed new well oil production per rig in the Bakken is expected to rise to 550 barrels per day next year. "As recently as June, they were only producing 500 barrels a day," Kilduff said.
Read MoreOil war is sticky, but OPEC may be forced to act
Bakken rigs tell a similar story to other major shale plays. The industry is deploying technology to improve production, a key factor in the surprising rise in U.S. production. New well oil production in the Bakken was just 300 barrels a day in early 2013, according to EIA.
Posts
ReplyDeleteNEW YORK: Global oil prices rallied modestly on Tuesday (Dec 9) from five-year lows after a US agency trimmed its forecast for 2015 US output due to drilling-budget cutbacks.
US benchmark West Texas Intermediate for delivery in January gained 77 cents to US$63.82 a barrel on the New York Mercantile Exchange. European benchmark Brent oil for delivery in January advanced 65 cents to US$66.84 a barrel in London.
The gains interrupted a fairly steady downward trend in oil prices that included a four percent decline Monday. Analysts said a small bounce in prices typically follows such a big fall.
Tuesday's action came as a monthly US Department of Energy outlook modestly reduced its 2015 US oil production forecast to 9.3 million barrels per day from the 9.4 million barrels per day previous estimate.
The report said it expects lower overall output growth because of drilling cutbacks "due to unattractive economic returns in some areas" and delays in some projects.
John Kilduff, founding partner at hedge fund Again Capital, called the forecast "mildly supportive." He said Tuesday's drop in the dollar also benefited dollar-denominated commodities, including oil.
Other supporting factors cited were projections that a weekly US petroleum inventories report to be released on Wednesday would show lower crude supplies and speculation that the Organisation of the Petroleum Exporting Countries would convene an emergency meeting soon to respond to lower prices.
- AFP/de
Spending in Indonesia's oil and gas exploration and production could fall by 20 percent in 2015 as a slide in global prices makes some projects no longer viable, its top industry association said.
ReplyDeleteChina's state-controlled energy giant Sinopec wants to sell some long-term liquefied natural gas import deals as a slowing economy makes them unprofitable, sources say, signalling the end of a five-year boom fueled by rising Chinese demand.
OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption.
ReplyDeleteThe Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That's about 1.15 million a day less than the group's 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. The impact of this year's 40 percent price collapse on supply and demand remains unclear, OPEC said.