Raymond James estimates U.S. production has been declining since March
The oil market may be tighter than many realize, according to analysis from Marshall Adkins and researchers at Raymond James. In a follow up to the research they did on the International Energy Agency’s (IEA) 1.2 MMBOPD of missing production, Adkins and his team delved into the Energy Information Administration’s (EIA) own balancing, or plug, number.
While the IEA’s plug number likely stems from chronic underreporting of demand, the EIA’s data suggest that the U.S. agency is overstating the growth of oil supply in recent months. Historically, the EIA has understated U.S. supply growth to the tune of about 140 MBOPD, but since March, the EIA’s plug number on its weekly inventory report has gone from a positive 362 MBOPD in Q1’15 to a negative 113 MBOPD in June.
“Put simply,” says Adkins, this “says U.S. oil supply is already rolling over… If we add back the EIA plug number to the recently reported weekly supply data [then] U.S. oil supply probably started rolling over in March.”
The rapid decline in the number of rigs drilling in the United States, which only in the last two weeks have shown increases after nearly 30 weeks of reductions, and the high decline rates associated with wells in shale formations have helped to push production down rapidly, say the analysts.
“After sequential monthly declines of 75 MBOPD to 100 MBOPD in May-July, our model suggests slowing rates of decline through the rest of 2015,” says the Raymond James note.
More production expected next year
While Adkins and his team expect production to continue declining through the rest of this year, the Raymond James note points out that their updated models show production rebounding in 2016. High-grading, in conjunction with rig counts finally finding a bottom, should push production numbers back up.
“Even with the relatively low exit rate from 2015, our model shows 2016 U.S. crude-only production should rebound reasonably quickly and yield about 70 MBOPD of year-over-year growth in 2016. This updated model now exceeds both the EIA’s Short-Term Energy Outlook and our previous model,” which suggested production would decline in 2016 by 160 MBOPD and 90 MBOPD, respectively.
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