U.S. Oil Production Stagnates Through July, But We See Growth Pick-Up Into Year-End No ratings yet.

Welcome to the stagnate edition of Oil Markets Daily!

EIA 914 last week was a bit of a surprise to us. It wasn’t the fact that production in July was down relative to June. We knew GOM shut-in from hurricane was ~320k b/d in July, but it was the fact that overall production with the decline came in at ~11.806 mb/d. We had expected ~12.1 mb/d with the GOM decline because the production matrix suggested more of a flattish production profile in July.

This means that even if you add back the GOM production decline, US oil production has been flat since December 2018 or 7 months of flat growth. Going forward, all of the production increase will come from the Permian with other basins adding very little barrels to the mix.

But in the last week, we’ve also seen commentaries saying US oil production will be flat into year-end. We just want to caution that it is not what we are seeing. At the moment, we have US oil production climbing from 11.806 mb/d in July to ~12.4 mb/d in August and ~12.5 mb/d in September. The latest production forecast shows October to be averaging ~12.55 mb/d.

Given the growth trajectory is weighed in the second-half of 2019, we are expecting exit production of ~12.7 to ~12.9 mb/d. So don’t be too optimistic that US shale production won’t grow.

Growth Deceleration is a Norm

Going forward, US shale growth rate deceleration is the norm.

Following the blistering growth rates we saw in 2018, US shale basin decline rates are now catching up. As the treadmill gets faster and faster, US shale producers will have to complete more wells just to stay flat. If productivity remains flat, then the treadmill of existing decline will make strong growth very unattainable.

For 2020, we have US shale growth slowing down to just ~700k b/d exit-to-exit. This will be reflected in the lower y-o-y growth as well. This figure will slow again in 2021 and so forth.

For HFI Research subscribers, we publish a weekly US oil production estimate, a weekly EIA crude storage estimate, along with an oil market daily. For readers interested in getting more exclusive research reports from us, please see here for more info.

Disclosure: I am/we are long UWT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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