US oil boom expected to end in May

US oil boom expected to end in May

14 April 2015, 16:30
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According to the Energy Information Administration, in May output from the prolific tight-rock formations such as North Dakota’s Bakken shale will decline 57,000 barrels a day. It marks the first time the agency has predicted a decline in output since it began issuing a monthly drilling productivity report in 2013. Earlier, Deutsche Bank AG, Goldman Sachs Group Inc. and IHS Inc. have forecast that U.S. oil production growth will end, at least temporarily, with futures near a six-year low. 

Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., is expected to fall 33,000 barrels a day in May to 1.69 million. Production in the Bakken region of North Dakota will decline 23,000 to 1.3 million, the EIA said.

Yield from the Permian Basin in West Texas and New Mexico, the largest U.S. oil field, will continue to rise, by 11,000 barrels a day to 1.99 million.

The EIA’s oil-production calculations are based on the number of rigs drilling in each play and estimates on how productive they are. The numbers of oil rigs in service across the country slid 42 last week to 760, the fewest since December 2010, Houston-based field services company Baker Hughes Inc. said.

Deutsche Bank forecast in a research note last week that production in May will mark “an important inflection point for the U.S. oil market.”

The plunge in prices has already forced half the country’s drilling rigs offline and wiped out thousands of jobs. The retreat in America’s oil boom is necessary to correct a surplus and rebalance global oil markets, according to Goldman.

“The question is how fast is the decline going to go. If it’s fast, if it’s steep, there could be a big jump in the market,” Carl Larry, head of oil and gas for Frost & Sullivan LP, said.

The dip in domestic production will come just as U.S. refineries start processing more oil following seasonal maintenance, easing the biggest glut since 1930, says Bloomberg.

The withdrawal from U.S. oil stockpiles is expected to bring relief to a market that’s seen prices drop by more than $50 a barrel since June, although the relief may be temporary, since U.S. drillers are building a backlog of drilled wells that they plan to hydraulically fracture and place into service as soon as prices rebound. Analysts including Wood Mackenzie Ltd. have estimated that the inventory has grown to more than 3,000 uncompleted wells.

Adam Longson, an analyst at Morgan Stanley in New York, considers that U.S. production can return quickly with any price recovery. “A backlog of uncompleted wells, falling service costs, hedging opportunities and plenty of capital on the sidelines should all support investment, perhaps more than the market expects.”

Advances in oil-drilling technologies are no longer enough to offset the rigs being idled by U.S. producers, Paul Horsnell, global head of commodities research at Standard Chartered Plc in London, said in an April 13 research note. Shale production is probably already falling, with total U.S. output set to shrink by 70,000 barrels a day from May to June, he said.

“The deceleration in U.S. output has been greater than the market is currently pricing in,” Horsnell said in the report. “Global rebalancing is in full swing.”

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