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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.”

RJ Production Rolled 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.

RJ Monthly US Oil Production Rate of Change

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.

RJ Future Production Model

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.