The cacophony in shale oil: lowering the cost, decreasing production and reserves growth

In energy markets net changes in prices over the past day were not very large. Thus, according to the American light oil WTI the day ended with a symbolic increase by 0.1%. However, price changes within a day were dramatic enough.

EIA published its weekly data on reserves and oil production. For the week ending March 25, 2016, commercial oil reserves in the U.S. rose to 2,299 million barrels (up to c 532,535 534,834 million barrels a week earlier).

Motor gasoline stocks at this time for the week fell by another 2.5 million barrels (up to 242,6 million with 245,1 bar.). The consumption of petroleum products grew slightly +51 thousand b/d (up to 19,454 with 19,403 mb/d). Net imports of petroleum and petroleum products decreased by 784 thousand b/d (up from 4,698 5,482 mb/d.). Total stocks of oil and petroleum products grew by 1.5 million barrels (up to 2051 with 2049,4 million bar.). You can note that in 2016, as the growth rate of total reserves, and the growth dynamics of commercial stocks are appreciably lower than in 2015. (Although the phenomenon of inhibition of growth of total reserves while probably associated with the approach to physical limits of storage). In the approximation of the reserves to their limits, it is useful to track changes in total stocks of oil and oil products. Such dynamics can be seen in the graph below. The three lower curves represent the maximum, average and minimum values of the total inventory for the period 1990 to 2014. The three lower curves is clearly visible seasonality, when stocks grow in the first half of the year. So this trend and this year can pretty scare the market.

According to estimates, the average daily production for the week ending March 25, decreased by 16 thousand bar. per day (up to 9,022 with 9,038 mb/d the previous week). It’s on a 588 million (-6,1%) barrels per day less than in the highs from June 5, 2015 and 74 thousand barrels less than the minimum last year from October 16. Thus, the decline in production keeps a pretty decent pace. (Because 16 thousand b/d x 52 weeks = 0,852 mb/d, and this is a very solid).

Recently actively discussed a study conducted by the consulting company in the energy sector IHS Global Inc. commissioned by the energy information Administration (EIA) U.S. Department of energy. According to the study, costs of U.S. oil and gas companies on exploration and production only in 2015 decreased by 25-30% compared to 2012 levels, when they were at a decade high. This was the result of the introduction of advanced technologies, which enhanced the efficiency of drilling and development of wells after drilling. However, the recent decline in prices continues to provoke the collapse in drilling activity. And the precipitous drop in drilling activity are increasingly evident in the dynamics of production. In the future this parameter will be watching in the first place.

The annual output also continued to decline. However, while the magnitude of this reduction is very, very modest not only compared to huge growth during the shale revolution, but even compared to the strong annual growth, which showed a curve on the rise. (Recall that at the best of times the annual growth of production exceeded 1 mb/d).

In addition, published data at this time is once again contradictory. Stocks up, oil production down. The price of the output data is first moved up, but quickly returned to its original state and even went down. Despite the expected and actually demonstrate the decline in production is increasingly straining the continuing growth stocks. Yes and active discussion of the findings of the study IHS Global Inc also doing their job.

The cacophony in shale oil: lowering the cost, decreasing production and reserves growth 31.03.2016

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