Kemp: US Shale Revival Likely To Cap Oil Price Gains



Kemp: US Shale Revival Likely To Cap Oil Price Gains
US shale producers are growing production again, renewing the challenge to OPEC's market share and potentially limiting further increases in oil prices during 2017/18.

Reuters

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LONDON, Feb 23 (Reuters) - U.S. shale producers are growing production again, renewing the challenge to OPEC’s market share and potentially limiting further increases in oil prices during 2017/18.

U.S. crude and condensate production increased in both October and November, the first back to back increases since early 2015, according to the U.S. Energy Information Administration (http://tmsnrt.rs/2lOpdAs).

Domestic oil production rose to 8.9 million barrels per day (bpd) in November, up from a cyclical low of 8.6 million bpd in September (“U.S. crude oil production increases following higher drilling activity”, EIA, Feb. 21).

Offshore production from the Gulf of Mexico accounted for more than half the total gain, adding an extra 175,000 bpd, with output from Alaska’s North Slope also up 61,000 bpd.

However, production increases were also reported from onshore predominantly shale plays in North Dakota (an extra 65,000 bpd), Oklahoma (11,000 bpd), New Mexico (15,000) and Texas (43,000 bpd).

Production from the contiguous United States excluding the Gulf of Mexico was still down by almost 550,000 bpd (7.5 percent) in November 2016 compared with November 2015.

But the annual decline was sharply lower than in May 2016 when output was down by almost 820,000 bpd (11 percent) compared with the same month a year earlier (http://tmsnrt.rs/2mfDDXA).

Growing Again

U.S. oil production appears to have resumed an upward trend, after reaching a trough in September, and output was likely flat or higher in December, January and February.

The number of rigs drilling for oil has risen by more than 280 (almost 90 percent) since the end of May 2016, according to oilfield services company Baker Hughes.

Exploration and production firms are deploying an average of an extra 10 to 15 rigs each week to boost their oil output (http://tmsnrt.rs/2ltZmgn).

There are now more rigs drilling for oil than at the same time a year earlier, the first year-on-year increase in drilling since early 2015 (http://tmsnrt.rs/2mfVBth).

And the increase in the rig count understates the extra new production because drilling and fracking operations have become much more efficient.

Rig counts tend to affect recorded output with a significant lag because of delays in fracturing and other completion services as well as the gap before new production is reported.


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