US Crude Production May Fall by Year’s End

Thomas Miller
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Posted: Feb 20, 2015 12:01 AM
US Crude Production May Fall by Year’s End

There were 1,931 total rigs spinning bits in the United States last September, at the peak of “drill baby drill”. Even though prices had already begun their slide two months prior, a trend that took five years to build cannot be reversed on a dime.

As of last week 1,358 rigs are drilling now. That’s a full 30-percent fewer. Art Berman, a geologist who worked for Amoco, acquired by BP, but now consults private clients, did some numbers crunching and his findings were published on oilprice.com.

Going back to the 2008/2009 drop, Art compared the slope of the drop in rigs between then and now. Bottom line: Rigs are going idle at a faster clip now than they did back then. If the current pace continues, we could see as few as 550 rigs working domestically by early-June, which would be over 300 fewer than the bottom of 2009.

Then, on an adjusted basis to compensate for more horizontal production now than then, Art forecast production numbers for the four biggest oil plays – the Bakken, Niobrara, Eagle Ford and Permian. Again, bottom line – by early June 2015, there could be a drop of almost 600,000 barrels of oil domestically if declines parallel the data he extracted from five years ago.

There’s almost a battle developing between industry folk, like Art, and Wall Street Analysts over where US domestic shale production is heading. Goldman Sachs has been parading its energy guru, Jeff Currie, in front of the media lately. Typically Jeff shuns the cameras and public spotlight, but lately he’s been jawboning that oil could be headed down into the 30s, primarily because so much production is still coming on line. With nary a mention of decline curves, it leaves one wondering if the real reason could be that Goldman is still sitting on too many overly-optimistic crude futures shorts they need to close out, preferably below $45, before things really turn around?

Meanwhile, rumors hit the street this week that Saudi was cranking up production, which whack-a-moled prices back down again. Any news, for any reason, that Saudi is opening the valves sends traders running for the hills.

We will probably bounce around for at least 90 more days before we know if Art’s forecasts are true. Meanwhile, unless the refiner’s strike expands, you’ll likely enjoy lower gas prices through spring.