Analys

Shale producers ramp up production as pipes to Gulf opens

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6 år sedan

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13 augusti, 2019

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Yesterday’s report on US shale oil drilling from the EIA was mostly depressing reading for global oil producers. It showed that the completion of wells rose to 1411 wells in July (+19 MoM) and the highest nominal level since early 2015. As a result the marginal, annualized US shale oil production growth rate rose to a projected 1.0 m bl/d in September which was up from a growth rate of 0.6 m bl/d.

Shale oil producers drilled fewer wells (down 31 to 1311 wells) which is consistent with the ongoing decline in drilling rigs which have declined by 124 rigs to 764 oil rigs since November last year. With a productivity of about 1.5 drilled wells per drilling rig in operation this means that close to 200 fewer wells are being drilled today.

Bjarne Schieldrop, Chief analyst commodities at SEB — Bjarne Schieldrop, Chief analyst commodities, SEB

Instead producers are focusing on completing wells. Drilling less and completing more meant that the number of drilled but uncompleted wells declined by 100 wells to 8,108. The DUC inventory is still 2,850 wells higher than the low point in late 2016. This means that producers can continue to throw out drilling rigs while still maintaining or increasing the number of wells completed per month and thus increase production.

The hope has been that the declining drilling rig count which now has been ongoing for 9 months with investors rioting against producers losing money demanding spending discipline, positive cash flow and profits would now start to materialize into a declining rate of well completions as well. This would naturally lead to softer production growth or even production decline.

In the previous report the estimated marginal, annualized production growth rate was only 0.6 m bl/d. We estimated then that it would only take a reduction in monthly well completions of 109 wells in order to drive US shale oil production to zero growth. I.e. it would not take much to drive growth to zero. Well completions per month would only have to decline from 1383 in June to 1274 and voila US shale oil production growth would have halted to zero. That did not happen. Instead the well completion rose to 1411 in July thus driving estimated the marginal, annualized production growth rate to 1.0 m bl/d in September.

Last year we witnessed that the local, Permian (Midland) crude oil price traded at a discount of as much as $26/bl below the Brent crude oil price as production was locked in both Permian and Cushing. So far this year the discount has mostly been varying between -$15/bl and -$5/bl. The writing on the wall for Permian shale oil producers has been that if they accelerated completions and production they would just kill the local price and the marginal value of production.

Now however transportation capacity out of the Permian is rapidly opening up to the US Gulf. The Cactus II (670 k bl/d) from the Permian to Corpus Christi (US Gulf) opened in early August and much more is coming later this year and early next year. As a result the local Permian crude oil price is now only -$3.4/bl below the Brent crude oil price. And even more important is that Permian producers now know that they can ramp up well completions and production without killing the local crude oil price.

Permian producers are moving from an obvious price setter position locally in the Permian to a perceived global oil price taker. Though in fact they will in the end also be the price setter in the global market place if they just ramp up well completions and production.

Our fear as well as OPEC’s fear and global oil producers fear is that Permian shale oil producers now will focus intensely on well completions. They have 3,999 drilled but uncompleted wells to draw down and they can now accelerate production without the risk of killing the local oil price. Well completions are after all equal to production and production is money in the pocket while drilling in itself is only spending.

There were a few positive elements in yesterday’s numbers seen from the eyes of global oil producers. Increased well completion was basically a Permian thing with completions on average declining elsewhere. Productivity of new wells continued to decline. This is counter to the headline productivity numbers from the US EIA. EIA is calculating drilling rig productivity and not well productivity. In addition they are not adjusting for a build or a draw in the DUC inventory. When the number of DUCs is increasing they under estimate drilling productivity and when the number of DUCs is declining they over estimate drilling productivity. They do not specify well productivity though which is declining in our numbers.

Ch1: The local Permian crude oil price discount to Brent crude has rapidly evaporated as the Cactus II from Permian to Corpus Christi has opened up. Now Permian producers can ramp up well completions without the risk of killing the local oil price.

Ch2: Drilling continued to decline but well completions rose to the highest nominal rate since early 2015. When drilling has declined long enough it is clear that well completions will have to decline as well. With a large DUC inventory we do however seem to be far from that point in time yet. The US DUC inventory stood at 8,108 in July, up 2,850 since late 2016.

Ch3: This is driving estimated new production in September up and away from losses in existing production. Thus marginal annualized production growth accelerated to 1.0 m bl/d in September.

Ch4: Marginal, annualized shale oil production growth rose to an estimated 1.0 m bl/d per year. Clearly down from the extremely strong production growth last year of up to 2 m bl/d growth rate. But still up versus last months report of a rate of 0.6 m bl/d per year with hopes then that the rate would decline further.

Ch5: Overall well productivity continued to deteriorate with latest 7 data points all below the average of the previous 7 points. This could be a function of the DUC inventory draw down. When the inventory rose producers took every 10th well and put it into the DUC inventory. It is logical that producers threw the 10% least promissing wells into the DUC inventory. This then led to an overestimation of the well productivity. Now that the DUC inventory is drawing down producers will have a 20% share of less performing wells. Thus further DUC inventory draw should lead to further overall well productivity.

Ch6: US shale oil production growth has slowed. Could it accelerate again now that pipes out of the Permian are opening up?

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A sharp weakening at the core of the oil market: The Dubai curve

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3 timmar sedan

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3 oktober, 2025

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Down to the lowest since early May. Brent crude has fallen sharply the latest four days. It closed at USD 64.11/b yesterday which is the lowest since early May. It is staging a 1.3% rebound this morning along with gains in both equities and industrial metals with an added touch of support from a softer USD on top.

Bjarne Schieldrop, Chief analyst commodities, SEB

What stands out the most to us this week is the collapse in the Dubai one to three months time-spread.

Dubai is medium sour crude. OPEC+ is in general medium sour crude production. Asian refineries are predominantly designed to process medium sour crude. So Dubai is the real measure of the balance between OPEC+ holding back or not versus Asian oil demand for consumption and stock building.

A sharp weakening of the front-end of the Dubai curve. The front-end of the Dubai crude curve has been holding out very solidly throughout this summer while the front-end of the Brent and WTI curves have been steadily softening. But the strength in the Dubai curve in our view was carrying the crude oil market in general. A source of strength in the crude oil market. The core of the strength.

The now finally sharp decline of the front-end of the Dubai crude curve is thus a strong shift. Weakness in the Dubai crude marker is weakness in the core of the oil market. The core which has helped to hold the oil market elevated.

Facts supports the weakening. Add in facts of Iraq lifting production from Kurdistan through Turkey. Saudi Arabia lifting production to 10 mb/d in September (normal production level) and lifting exports as well as domestic demand for oil for power for air con is fading along with summer heat. Add also in counter seasonal rise in US crude and product stocks last week. US oil stocks usually decline by 1.3 mb/week this time of year. Last week they instead rose 6.4 mb/week (+7.2 mb if including SPR). Total US commercial oil stocks are now only 2.1 mb below the 2015-19 seasonal average. US oil stocks normally decline from now to Christmas. If they instead continue to rise, then it will be strongly counter seasonal rise and will create a very strong bearish pressure on oil prices.

Will OPEC+ lift its voluntary quotas by zero, 137 kb/d, 500 kb/d or 1.5 mb/d? On Sunday of course OPEC+ will decide on how much to unwind of the remaining 1.5 mb/d of voluntary quotas for November. Will it be 137 kb/d yet again as for October? Will it be 500 kb/d as was talked about earlier this week? Or will it be a full unwind in one go of 1.5 mb/d? We think most likely now it will be at least 500 kb/d and possibly a full unwind. We discussed this in a not earlier this week: ”500 kb/d of voluntary quotas in October. But a full unwind of 1.5 mb/d”

The strength in the front-end of the Dubai curve held out through summer while Brent and WTI curve structures weakened steadily. That core strength helped to keep flat crude oil prices elevated close to the 70-line. Now also the Dubai curve has given in.

Brent crude oil forward curves

Total US commercial stocks now close to normal. Counter seasonal rise last week. Rest of year?

Total US crude and product stocks on a steady trend higher.

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Analys

OPEC+ will likely unwind 500 kb/d of voluntary quotas in October. But a full unwind of 1.5 mb/d in one go could be in the cards

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2 dagar sedan

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1 oktober, 2025

Redaktionen

Down to mid-60ies as Iraq lifts production while Saudi may be tired of voluntary cut frugality. The Brent December contract dropped 1.6% yesterday to USD 66.03/b. This morning it is down another 0.3% to USD 65.8/b. The drop in the price came on the back of the combined news that Iraq has resumed 190 kb/d of production in Kurdistan with exports through Turkey while OPEC+ delegates send signals that the group will unwind the remaining 1.65 mb/d (less the 137 kb/d in October) of voluntary cuts at a pace of 500 kb/d per month pace.

Signals of accelerated unwind and Iraqi increase may be connected. Russia, Kazakhstan and Iraq were main offenders versus the voluntary quotas they had agreed to follow. Russia had a production ’debt’ (cumulative overproduction versus quota) of close to 90 mb in March this year while Kazakhstan had a ’debt’ of about 60 mb and the same for Iraq. This apparently made Saudi Arabia angry this spring. Why should Saudi Arabia hold back if the other voluntary cutters were just freeriding? Thus the sudden rapid unwinding of voluntary cuts. That is at least one angle of explanations for the accelerated unwinding.

If the offenders with production debts then refrained from lifting production as the voluntary cuts were rapidly unwinded, then they could ’pay back’ their ’debts’ as they would under-produce versus the new and steadily higher quotas.

Forget about Kazakhstan. Its production was just too far above the quotas with no hope that the country would hold back production due to cross-ownership of oil assets by international oil companies. But Russia and Iraq should be able to do it.

Iraqi cumulative overproduction versus quotas could reach 85-90 mb in October. Iraq has however steadily continued to overproduce by 3-5 mb per month. In July its new and gradually higher quota came close to equal with a cumulative overproduction of only 0.6 mb that month. In August again however its production had an overshoot of 100 kb/d or 3.1 mb for the month. Its cumulative production debt had then risen to close to 80 mb. We don’t know for September yet. But looking at October we now know that its production will likely average close to 4.5 mb/d due to the revival of 190 kb/d of production in Kurdistan. Its quota however will only be 4.24 mb/d. Its overproduction in October will thus likely be around 250 kb/d above its quota with its production debt rising another 7-8 mb to a total of close to 90 mb.

Again, why should Saudi Arabia be frugal while Iraq is freeriding. Better to get rid of the voluntary quotas as quickly as possible and then start all over with clean sheets.

Unwinding the remaining 1.513 mb/d in one go in October? If OPEC+ unwinds the remaining 1.513 mb/d of voluntary cuts in one big go in October, then Iraq’s quota will be around 4.4 mb/d for October versus its likely production of close to 4.5 mb/d for the coming month..

OPEC+ should thus unwind the remaining 1.513 mb/d (1.65 – 0.137 mb/d) in one go for October in order for the quota of Iraq to be able to keep track with Iraq’s actual production increase.

October 5 will show how it plays out. But a quota unwind of at least 500 kb/d for Oct seems likely. An overall increase of at least 500 kb/d in the voluntary quota for October looks likely. But it could be the whole 1.513 mb/d in one go. If the increase in the quota is ’only’ 500 kb/d then Iraqi cumulative production will still rise by 5.7 mb to a total of 85 mb in October.

Iraqi production debt versus quotas will likely rise by 5.7 mb in October if OPEC+ only lifts the overall quota by 500 kb/d in October. Here assuming historical production debt did not rise in September. That Iraq lifts its production by 190 kb/d in October to 4.47 mb/d (August level + 190 kb/d) and that OPEC+ unwinds 500 kb/d of the remining quotas in October when they decide on this on 5 October.

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Analys

Modest draws, flat demand, and diesel back in focus

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1 vecka sedan

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26 september, 2025

Redaktionen

U.S. commercial crude inventories posted a marginal draw last week, falling by 0.6 million barrels to 414.8 million barrels. Inventories remain 4% below the five-year seasonal average, but the draw is far smaller than last week’s massive 9.3-million-barrel decline. Higher crude imports (+803,000 bl d WoW) and steady refinery runs (93% utilization) helped keep the crude balance relatively neutral.

Ole R. Hvalbye, Analyst Commodities, SEB

Yet another drawdown indicates commercial crude inventories continue to trend below the 2015–2022 seasonal norm (~440 million barrels), though at 414.8 million barrels, levels are now almost exactly in line with both the 2023 and 2024 trajectory, suggesting stable YoY conditions (see page 3 attached).

Gasoline inventories dropped by 1.1 million barrels and are now 2% below the five-year average. The decline was broad-based, with both finished gasoline and blending components falling, indicating lower output and resilient end-user demand as we enter the shoulder season post-summer (see page 6 attached).

On the diesel side, distillate inventories declined by 1.7 million barrels, snapping a two-week streak of strong builds. At 125 million barrels, diesel inventories are once again 8% below the five-year average and trending near the low end of the historical range.

In total, commercial petroleum inventories (excl. SPR) slipped by 0.5 million barrels on the week to ish 1,281.5 million barrels. While essentially flat, this ends a two-week streak of meaningful builds, reflecting a return to a slightly tighter situation.

On the demand side, the DOE’s ‘products supplied’ metric (see page 6 attached), a proxy for implied consumption, softened slightly. Total demand for crude oil over the past four weeks averaged 20.5 million barrels per day, up just 0.9% YoY.

Summing up: This week’s report shows a re-tightening in diesel supply and modest draws across the board, while demand growth is beginning to flatten. Inventories remain structurally low, but the tone is less bullish than in recent weeks.