Analys
The most important data point in the global oil market will be published on Friday 28 June
US crude oil production has been booming for more than a decade. Interrupted by two setbacks in response to sharp price declines. The US boom has created large waves in the global oil market and made life very difficult for OPEC(+). Brent crude has not traded below USD 70/b since Dec-2021 and over the past year, it has averaged USD 84/b. US shale oil production would typically boom with such a price level historically. However, there has been zero growth in US crude oil production from Sep-2023 to Mar-2024. This may be partially due to a cold US winter, but something fundamentally seems to have changed. We recently visited a range of US E&P and oil services companies in Houston. The general view was that there would be zero growth in US crude oil production YoY to May 2025. If so and if it also is a general shift to sideways US crude oil production beyond that point, it will be a tremendous shift for the global oil market. It will massively improve the position of OPEC+. It will also sharply change our perception of the forever booming US shale oil supply. But ”the proof is in the pudding” and that is data. More specifically the US monthly, controlled oil production data is to be published on Friday 28 June.
The most important data point in the global oil market will be published on Friday 28 June. The US EIA will then publish its monthly revised and controlled oil production data for April. Following years of booming growth, the US crude oil production has now gone sideways from September 2023 to March 2024. Is this a temporary blip in the growth curve due to a hard and cold US winter or is it the early signs of a huge, fundamental shift where US crude oil production moves from a decade of booming growth to flat-lining horizontal production?
We recently visited a range of E&P and oil services companies in Houston. The general view there was that US crude oil production will be no higher in May 2025 than it is in May 2024. I.e. zero growth.
It may sound undramatic, but if it plays out it is a huge change for the global oil market. It will significantly strengthen the position of OPEC+ and its ability to steer the oil price to a suitable level of its choosing.
The data point on Friday will tell us more about whether the companies we met are correct in their assessment of non-growth in the coming 12 months or whether production growth will accelerate yet again following a slowdown during winter.
The US releases weekly estimates for its crude oil production but these are rough, temporary estimates. The market was fooled by these weekly numbers last year when the weekly numbers pointed to a steady production of around 12.2 m b/d from March to July while actual monthly data, with a substantial lag in publishing, showed that production was rising strongly.
The real data are the monthly, controlled data. These data will be the ”proof of the pudding” of whether US shale oil production now is about to shift from a decade of booming growth to instead flat-line sideways or whether it will drift gradually higher as projected by the US EIA in its latest Short-Term Energy Outlook.
US crude oil production given by weekly data and monthly data. Note that the monthly, controlled data comes with a significant lag. The market was thus navigating along the weekly data which showed ”sideways at 12.2 m b/d” for a significant period last year until actual data showed otherwise with a time-lag.
If we add in Natural Gas Liquids and zoom out to include history back to 2001 we see an almost uninterrupted boom in supply since Sep 2011 with a few setbacks. At first glance, this graph gives little support to a belief that US crude oil production now suddenly will go sideways. Simple extrapolation of the graph indicates growth, growth, growth.
US crude and liquids production has boomed since September 2011
However. The latest actual data point for US crude oil production is for March with a reading of 13.18 m b/d. What stands out is that production then was still below the September level of 13.25 m b/d.
The world has gotten used to forever growing US crude oil production due to the US shale oil revolution, with shorter periods of sharp production declines as a result of sharp price declines.
But the Brent crude oil price hasn’t collapsed. Instead, it is trading solidly in the range of USD 70-80-90/b. The front-month Brent crude oil contract hasn’t closed below USD 70/b since December 2021.
Experiences from the last 15 years would imply wild production growth and activity in US shale oil production at current crude oil prices. But US crude oil production has now basically gone sideways to lower from September to March.
The big, big question is thus: Are we now witnessing the early innings of a big change in US shale oil production where we shift from booming growth to flat-lining of production?
If we zoom in we can see that US liquids production has flat-lined since September 2023. Is the flat-lining from Sep to Mar due to the cold winter so that we’ll see a revival into spring and summer or are we witnessing the early signs of a huge change in the global oil market where US crude oil production goes from booming growth to flat-line production.
The message from Houston was that there will be no growth in US crude oil production until May 2025. SEB recently visited oil and gas producers and services providers in Houston to take the pulse of the oil and gas business. Especially so the US shale oil and shale gas business. What we found was an unusually homogeneous view among the companies we met concerning both the state of the situation and the outlook. The sentiment was kind of peculiar. Everybody was making money and was kind of happy about that, but there was no enthusiasm as the growth and boom years were gone. The unanimous view was that US crude oil production would be no higher one year from now than it is today. I.e. flat-lining from here.
The arguments for flat-lining of US crude oil production here onward were many.
1) The shale oil business has ”grown up” and matured with a focus on profits rather than growth for the sake of growth.
2) Bankruptcies and M&As have consolidated the shale oil companies into larger, fewer public companies now accounting for up to 75% of total production. Investors in these companies have little interest/appetite for growth after having burned their fingers during a decade and a half of capital destruction. These investors may also be skeptical of the longevity of the US shale oil business. Better to fully utilize the current shale oil infrastructure steadily over the coming years and return profits to shareholders than to invest in yet more infrastructure capacity and growth.
3) The remaining 25% of shale oil producers which are in private hands have limited scope for growth as they lack pipeline capacity for bringing more crude oil from field to market. Associated nat gas production is also a problem/bottleneck as flaring is forbidden in many places and pipes to transport nat gas from field to market are limited.
4) The low-hanging fruits of volume productivity have been harvested. Drilling and fracking are now mostly running 24/7 and most new wells today are all ”long wells” of around 3 miles. So hard to shave off yet another day in terms of ”drilling yet faster” and the length of the wells has increasingly reached their natural optimal length.
5) The average ”rock quality” of wells drilled in the US in 2024 will be of slightly lower quality than in 2023 and 2025 will be slightly lower quality than 2024. That is not to say that the US, or more specifically the Permian basin, is quickly running out of shale oil resources. But this will be a slight headwind. There is also an increasing insight into the fact that US shale oil resources are indeed finite and that it is now time to harvest values over the coming 5-10 years. One company we met in Houston argued that US shale oil production would now move sideways for 6-7 years and then overall production decline would set in.
The US shale oil revolution can be divided into three main phases. Each phase is probably equally revolutionary as the other in terms of impact on the global oil market.
1) The boom phase. It started after 2008 but didn’t accelerate in force before the ”Arab Spring” erupted and drove the oil price to USD 110/b from 2011 to 2014. It was talked down time and time again, but it continued to boom and re-boom to the point that today it is almost impossible to envision that it won’t just continue to boom or at least grow forever.
2) The plateau phase. The low-hanging fruits of productivity growth have been harvested. The highest quality resources have been utilized. The halfway point of resources has been extracted. Consolidation, normalization, and maturity of the business has been reached. Production goes sideways.
3) The decline phase. Eventually, the resources will have been extracted to the point that production unavoidably starts to decline.
Moving from phase one to phase two may be almost as shocking for the oil market as the experience of phase 1. The discussions we had with oil producers and services companies in Houston may indicate that we may now be moving from phase one to phase two. That there will be zero shale oil production growth YoY in 2025 and that production then may go sideways for 6-7 years before phase three sets in.
US EIA June STEO report with EIA’s projection for US crude oil production to Dec-2025. Softer growth, but still growth.
US EIA June STEO report with YoY outlook growth for 2025. Projects that US crude production will grow by 0.47 m b/d YoY in 2025 and that total liquids will grow by 720 k b/d YoY.
US EIA June STEO report with outlook for production growth by country in 2025. This shows how big the US production growth of 0.7 m b/d YoY really is compared to other producers around the world
US EIA June STEO report with projected global growth in supply and demand YoY in 2025. Solid demand growth, but even strong supply growth with little room for OPEC+ to expand. Production growth by non-OPEC+ will basically cover global oil demand growth.
But if there instead is zero growth in US crude oil production in 2025 and the US liquids production only grows by 0.25 m b/d YoY due to NGLs and biofuels, then suddenly there is room for OPEC+ to put some of its current production cuts back into the market. Thus growth/no-growth in US shale oil production will be of huge importance for OPEC+ in 2025. If there is no growth in US shale oil then OPEC+ will have a much better position to control the oil price to where it wants it.
US crude oil production and drilling rig count
Analys
Crude oil comment: Deferred contracts still at very favorable levels as latest rally concentrated at front-end
Bouncing up again after hitting the 200dma. Bitter cold winter storm in Texas adding to it. Brent crude continued its pullback yesterday with a decline of 1.1% to USD 79.29/b trading as low as USD 78.45/b during the day dipping below the 200dma line while closing above. This morning it has been testing the downside but is now a little higher at USD 79.6/b. A bitter cold winter storm is hitting Texas to Floriday. It is going to disrupt US nat gas exports and possibly also US oil production and exports. This may be part of the drive higher for oil today. But maybe also just a bounce up after it tested the 200dma yesterday.
Some of the oomph from the Biden-sanctions on Russia has started to defuse with arguments running that these sanctions will only delay exports of Russian crude and products rather than disrupt them. The effects of sanctions historically tend to dissipate over time as the affected party finds ways around them.
Donald criticizing Putin. Biden-sanctions may not be removed so easily. In a surprising comment, Donald Trump has criticized Putin saying that he is ”destroying Russia” and that ”this is no way to run a country”. Thus, Donald Trump coming Putin to the rescue, removing the recent Biden-sanctions and handing him a favorable peace deal with Ukraine, no longer seems so obvious.
Deeper and wider oil sanctions from Trump may lift deferred contracts. Trump may see that he has the stronger position while Putin is caught in a quagmire of a war in Ukraine. Putin in response seems to seek closer relationship with Iran. That may not be the smart move as the US administration is working on a new set of sanctions towards Iranian oil industry. We expect Donald Trump to initiate new sanctions towards Iran and Venezuela in order to make room for higher US oil production and exports. That however will also require a higher oil price to be realized. On the back of the latest comments from Donald Trump one might wonder whether also Russia will end up with harder sanctions from the US and lower Russian exports as a result and not just Iran and Venezuela. Such sanctions could lift deferred prices.
Deferred crude oil prices are close to the 70-line and are still good buys for oil consumers as uplift in prices have mostly taken place at the front-end of the curves. Same for oil products including middle distillates like ICE Gas oil. But deeper and lasting sanctions towards Iran, Venezuela and potentially also Russia could lift deferred prices higher.
The recent rally in the Dubai 1-3 mth time-spread has pulled back a little. But it has not collapsed and is still very, very strong in response to previous buyers of Russian crude turning to the Middle East.
The backwardation in crude is very sharp and front-loaded. The deferred contracts can still be bought at close to the 70-line for Brent crude. The rolling Brent 24mth contract didn’t get all that much lower over the past years except for some brief dips just below USD 70/b
ICE Gasoil rolling forward 12mths and 24mths came as low as USD 640/ton in 2024. Current price is not much higher at USD 662/ton and the year 2027 can be bought at USD 658/ton. Even after the latest rally in the front end of crude and mid-dist curves. Deeper sanctions towards Iran, Russia and Venezuela could potentially lift these higher.
Forward curves for Brent crude swaps and ICE gasoil swaps.
Nat gas front-month getting costlier than Brent crude and fuel oil. Likely shifting some demand away from nat gas to instead oil substitutes.
Brent crude was already ripe for a correction lower. Brent closed down 0.8% yesterday at USD 80.15/b and traded as low as USD 79.42/b intraday. Brent is trading down another 0.4% this morning to USD 79.9/b. It is hard to track and assign exactly what from Donald Trump’s announcements yesterday which was impacting crude oil prices in different ways. But crude oil was already ripe for a correction lower as it recently went into strongly overbought territory. So, Brent would probably have sold off a bit anyhow, even without any announcements from Trump.
Extending the life of US oil and gas. The Brent 5-year contract rose yesterday. For sure he wants to promote and extend the life of US oil and gas. Longer dated Brent prices (5-yr) rose 0.5% yesterday to USD 68.77/b. Maybe in a reflection of that.
Lifting the freeze on LNG exports will be good for US gas producers and global consumers in five years. Trumps lifting of Bidens freeze on LNG exports will is positive for global nat gas consumers which may get lower prices, but negative for US consumers which likely will get higher prices. Best of all is it for US nat gas producers which will get an outlet for their nat gas into the international market. They will produce more and get higher prices both domestically and internationally. But it takes time to build LNG export terminals. So immediate effect on markets and prices. But one thing that is clear is that Donald Trump by this takes the side of rich US nat gas producers and not the average man in the street in the US which will have to pay higher nat gas prices down the road.
Removing restrictions on federal land and see will likely not boost US production. But maybe extend it. Donald Trump will likely remove restrictions on leasing of federal land and waters for the purpose of oil and gas exploration and production. But this process will likely take time and then yet more time before new production appears. It will likely extend the life of the US fossil industry rather than to boost production to higher levels. If that is, if the president coming after Trump doesn’t reverse it again.
Donald to fill US Strategic Reserves to the brim. But they are already filled at maximum rate. Donald Trump wants to refill the US Strategic Petroleum Reserves (SPR) to the brim. Currently standing at 394 mb. With a capacity of around 700 mb it means that another 300 mb can be stored there. But Donald Trump’s order will likely not change anything. Biden was already refilling US SPR at its maximum rate of 3 mb per month. The discharge rate from SPR is probably around 1 mb/d, but the refilling capacity rate is much, much lower. One probably never imagined that refilling quickly would be important. The solution would be to rework the pumping stations going to the SPR facilities.
New sanctions towards Iran and Venezuela in the cards but will likely be part of a total strategic puzzle involving Russia/Ukraine war, Biden-sanctions on Russia and new sanctions on Iran and Venezuela. All balanced to end the Russia/Ukraine war, improve the relationship between Putin and Trump, keep the oil price from rallying while making room for more oil exports of US crude oil into the global market. Though Donald Trump looks set to also want to stay close to Muhammed Bin Salman of Saudi Arabia. So, allowing more oil to flow from both Russia, Saudi Arabia and the US while also keeping the oil price above USD 80/b should make everyone happy including the US oil and gas sector. Though Iran and Venezuela may not be so happy. Trumps key advisers are looking at a big sanctions package to hit Iran’s oil industry which could possibly curb Iranian oil exports by up to 1 mb/d. Donald Trump is also out saying that the US probably will stop buying oil from Venezuela. Though US refineries really do want that type of oil to run their refineries.
Big money and USD 80/b or higher. Donald Trump holding hands with US oil industry, Putin and Muhammed Bin Salman. They all want to produce more if possible. But more importantly they all want an oil price of USD 80/b or higher. Big money and politics will probably talk louder than the average man in the street who want a lower oil price. And when it comes to it, a price of USD 80/b isn’t much to complain about given that the 20-year average nominal Brent crude oil price is USD 77/b, and the inflation adjusted price is USD 102/b.
Easing a bit towards the 80-line this morning following recent strong gains. Brent crude gained another 1.3% last week with a close of USD 80.79/b. It reached a high of USD 82.63/b last Wednesday. This morning it is inching down 0.3% to USD 80.5/b.
Donald needs a higher oil price to get another US shale oil production boom. Donald Trump declaring an energy emergency with promises of opening up federal land for oil exploration +++, may sound alarmingly bearish for oil. But the days when US oil production (shale) was booming at an average oil price of USD 58/b (2015-19) are behind us. Brent has averaged USD 81/b through 2023 and 2024, and US shale oil is now moving towards zero growth in 2026.
Donald Trump (and the US oil industry) needs a higher oil price to drive US oil production significantly higher over the next 4 years. The US oil industry also needs to know that there will be a sustainable need for higher US oil production. So, someone else in the oil market needs to exit to make room for more oil from the US. Iran and/or Venezuela will be the likely targets for Donald Trump in that respect. But it is still not obvious that the US oil industry will go for another period of strong oil supply growth with natural doubts over how lasting a possible outage from Iran and/or Venezuela would be.
Strong rise in speculative positions increases the risks for pullbacks below the 80-line. The new sanctions on Russia have pushed crude oil higher over the past weeks, but speculators have also helped to drive flat prices higher as well as driving the front-end of the crude curves into steeper backwardation. Speculators typically buy the front-end of the crude curves and thus tend to bend the forward curves into steeper backwardation whey they buy. So, curve shapes are not fully objective measures of tightness. Net-long speculative positions (Brent +WTI) rose 52.4 mb over the week to last Tuesday. In total they are up 415 mb to 577 mb versus the low point in the autumn of 162 mb in early September.
Brent crude has now technically pulled back from overbought with RSI at 65.2 and back below the 70-line. But washing out some long-specs with Brent trading sub-80 for a little while is probably in the cards still.
But this does not look like just a speculatively driven frothy flash-in-the-pan. But do not forget that time-spreads have been tightening since early December and flat prices have risen higher along with them. Thus, this is not just a speculatively driven frothy flash-in-the-pan. The new sanctions on Russia are also having a tightening effect on the market both on Crude, LNG and middle distillates. Add also in that Donald Trump needs a higher oil price to drive US oil production higher. So even if we find it likely that Brent crude will make a pullback below the 80-line, it does not mean that this is the end of the gains.
Net long speculative positions in Brent + WTI in million barrels
52-week ranking of speculative positions in Brent + WTI and 52-week ranking of 1-7mth Brent time-spread.
Brent crude 1mth vs. Dubai 1-3mth time spread. The Dubai time-spread is probably less impacted by speculative positions and thus a better reflection of actual physical conditions. This is rising yet a little more this morning.
Crude oil comment: Deferred contracts still at very favorable levels as latest rally concentrated at front-end
Liquid Wind inleder samarbete med Turun Seudun för etablering av elektrobränsleanläggning i Finland
Bixias prognos för 2025: ”kan bli ett av de billigaste elåren någonsin”
Crude oil comment: Big money and USD 80/b
Epiroc-aktien är ett bra sätt att få exponering mot gruv- och råvarusektorn
Kina har förbjudit exporten av gallium till USA, Neo Performance Materials är den enda producenten i Nordamerika
Priset på nötkreatur det högsta någonsin i USA
Europa är den dominerande köparen av olja från USA
Christian Kopfer om olja, koppar, guld och silver
The rally continues with good help from Russian crude exports at 16mths low
-
Nyheter4 veckor sedanKina har förbjudit exporten av gallium till USA, Neo Performance Materials är den enda producenten i Nordamerika
-
Nyheter3 veckor sedan
Priset på nötkreatur det högsta någonsin i USA
-
Nyheter4 veckor sedanEuropa är den dominerande köparen av olja från USA
-
Nyheter2 veckor sedanChristian Kopfer om olja, koppar, guld och silver
-
Analys2 veckor sedan
The rally continues with good help from Russian crude exports at 16mths low
-
Nyheter2 veckor sedanDarwei Kung på DWS ger sin syn på råvaror inför 2025 – mest positiv till guld
-
Analys2 veckor sedan
Crude oil comment: Pulling back after technical exhaustion and disappointing US inventory data. Low Cushing stocks lifting eyebrows
-
Analys2 veckor sedan
Brent crude marches on with accelerating strength coming from Mid-East time-spreads