OPEC Production Cut Unlikely Until U.S. Production Declines Another Million Barrels Per Day

Posted in The Petroleum Truth Report on February 10, 2016

An OPEC production cut is unlikely until U.S. production declines by about another million barrels per day (mmbpd). OPEC won’t cut because it would accomplish nothing beyond a short-term increase in price. Carefully placed comments by OPEC and Russian oil ministers about the possibility of production cuts achieve almost the same price increase as an actual cut.

Bad News About The Oil Over-Supply from IEA and EIA

The International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) shook the markets yesterday with news that the world’s over-supply of oil has gotten worse rather than better in recent months. IEA data shows that the global liquids over-supply increased in the 4th quarter of 2015 to 2.24 million barrels per day (mmbpd) from 1.62 mmbpd in the 3rd quarter (Figure 1).

Chart_Market Balance-FEB 2016

Figure 1. IEA world liquids market balance (supply minus demand). Source: IEA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Supply increased 70,000 bpd and demand decreased 550,000 bpd for a net increase in over-supply of 620,000 bpd. The sharp decline in demand is perhaps the most troubling aspect of IEA’s report. The agency forecasts tepid demand growth of only 1.17 mmbpd in 2016 compared with 1.61 mmbpd in 2015. The weak global economy is the culprit.

EIA’s monthly data showed the same trend. Over-supply in January increased to 2.01 mmbpd from 1.35 mmbpd in December, a 650,000 bpd net change (Figure 2). Supply fell by 370,000 bpd but consumption dropped by a stunning 1.02 mmbpd.

EIA World Liquids Market Balance FEB 2016

Figure 2. EIA world liquids market balance (supply minus consumption). Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The January 2016 Oil Price Head-Fake

Recent comments about a possible OPEC cut were largely responsible for the late January “head-fake” increase in oil prices (Figure 3). WTI futures increased 27% from $26.55 to $33.62 per barrel between January 20 and 29. As hopes for a production cut faded, prices fell 8% last week and have fallen below $28.00 as reality regains control of market expectations.

NYMEX Futures 2015 Rallies & Declines 17 Jan 2016
Figure 3. NYMEX WTI futures prices, October 2015-February 2016. Source: EIA, Bloomberg and Labyrinth Consulting Services, Inc.
(click image to enlarge)

There were, of course, other factors that boosted oil prices for that brief period. These included the usual questionably substantial suspects: a lower-than-expected build in U.S. crude oil inventories, sharp declines in U.S. land rig counts, and a weaker U.S. dollar on expectation that the Federal Reserve Board may slow planned interest-rate increases. What happens in the U.S. continues to drive oil markets.

Oil markets reflect a psychological conflict among investors between reality and hope. The reality is that the world is over-supplied with oil. The hope is that oil prices will increase without resolving that fundamental problem.

An OPEC production cut fulfills that hope. Deus ex machina.

Blame It On OPEC

Many believe that OPEC caused the global oil-price collapse by failing to rescue prices in its role as swing producer. This narrative also contends that OPEC and Saudi Arabia are producing at maximum capacity to destroy U.S. shale producers. The data do not support this narrative.

January 2016 Saudi crude oil production (9.95 mmbpd) increased slightly from December (9.90 mmbpd) but has declined since the August 2015 peak of 10.25 mmbpd (Figure 4).


Figure 4. Saudi Arabia crude oil production and change in production since January 2008. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Total OPEC crude oil production in January production was 31.61 mmbpd, almost half-a-million barrels per day less than in July (32.09 mmbpd) and only somewhat more than its 4-year average of 31.28 mmbpd.

Figure 5. Total OPEC crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

OPEC crude oil production since the Financial Crisis in 2008 has been remarkably balanced (Figure 6). Overall, increases by Iraq (+2.35 mmbpd) and Saudi Arabia (+0.6 mmbpd) have largely offset decreases by Iran (-1.0 mmpbd due to sanctions) and Libya (-1.4 mmbpd due to civil war). Renewed export by Iran with the lifting of sanctions is part of what pulls the oil market back to reality after its flights of sentiment-based hope.

OPEC Production Compared To January 2008

Figure 6. OPEC crude oil production compared to January 2008 production levels (minus Indonesia). Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Although it appears unlikely that Libya will resolve its civil unrest any time soon, renewed Libyan production and export is a sobering factor to ponder.

OPEC and Saudi Arabia increased production aggressively from March through August of 2015. Since then, however, production has declined to near average levels for 2012-2016.

The United States and Non-OPEC Are The Problem

OPEC did not cause the oil over-supply in early 2014. Over-production by the United States and other non-OPEC countries caused the problem. This is still the case.

The U.S. is responsible for more than 70% of the increase in non-OPEC liquids production since January 2014 (Figure 7). Brazil and Canada along with China and Russia account for the rest.


Figure 7. Non-OPEC liquids production compared to January 2014 production levels. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Until the structure of non-OPEC production decreases, there is little that OPEC can do to remedy low prices. Cuts by OPEC might temporarily increase prices but this would lead to more over-production outside of OPEC that would further collapse world oil prices later on.

Why U.S. Production Has Not Declined More

U.S. crude oil production has only declined by approximately 570,000 bpd from its peak of 9.69 mmbpd in April 2014 to 9.13 mmbpd in January 2016–about 60,000 bpd each month (Figure 8).

us prod STEO_JAN 2016

Figure 8. U.S. crude oil production and forecast. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

EIA forecasts that production will fall another 820,000 bpd (about 100 kbpd each month) to 8.31 mmbpd by September 2016 before increasing again. The forecast provides hope that the oil market may balance later in 2016 or in 2017 but history to date suggests that it is probably optimistic.

Tight oil production in the U.S. has not declined nearly as much as many anticipated based on falling rig counts. Most explanations invoke increases in drilling and completion efficiency but I believe the truth lies in the continued availability of external capital to fund drilling of an ever-increasing number of producing wells until quite recently.

In the Bakken, Eagle Ford and Permian basin plays, the number of producing wells has declined or flattened in the last reporting months of October or November 2015. The plays are different and so are the patterns for production decline. Nevertheless, the decrease in new producing wells suggests that either capital is less available or that companies are choosing to drill and complete fewer wells.

Reporting in the Bakken is better than in the other plays. Bakken production only declined 51,000 bpd between the December 2014 and November 2015, the last reported data from the North Dakota Department of Mineral Resources (Figure 9).

ND Bakken Prod Summary
Figure 9. Bakken production and number of producing wells. Source: North Dakota Dept. of Mineral Resources and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Over the same period, the horizontal rig count fell by 111, from 173 to 62 rigs. Yet, the number of producing wells increased by 943, from 12,134 to 13,077 (the number of wells waiting on completion (WOC) increased by 219 from 750 to 969).

As long as more wells were added each month, production continued to increase. The number of producing wells only began to decline in October 2015. Each completed well cost approximately $8 million so capital spending did not decrease until then despite fairy tales about ever-increasing efficiency.

The resilience of tight oil production in the Bakken, therefore, reflected the continued availability of external capital to fund more drilling and completion. The impact of reduced capital is apparently a recent phenomenon in the Bakken.

The Eagle Ford and Permian basin plays show similar patterns of flattening rates of well completions in recent months. Eagle Ford production has declined 183,000 bpd since March 2015 while Permian basin production may just be peaking.

It is too early to draw concrete conclusions from the tight oil play data presented here but, in a way, that is the point. Production has only begun to decline because external capital was available until late 2015 despite low oil prices. If companies are forced to rely increasingly on cash flow for new drilling then, U.S. production should decline sharply. If, on the other hand, the recent $2 billion in equity raised by Permian basin operators becomes more the norm in 2016 then, production declines will be more modest.

The U.S. Crude Oil Storage Problem

There is little chance that oil prices will increase beyond the head-fakes and sentiment-driven price cycles of the past year until U.S. crude oil storage begins to decrease. Oil stocks are currently 154 million barrels more than the 5-year average and 131 million barrels more than the 5-year maximum (Figure 10).

Crude Oil Stocks_5-Year AVG MIN MAX 6 FEB 2016
Figure 10. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The Cushing, Oklahoma pricing hub and nearby Gulf Coast storage facilities make up almost 70% of U.S. working storage capacity. These crucial storage areas are currently at 85% of capacity (Figure 11).

Cushing & Gulf Coast Inventory & Utilization 6 Feb 2016
Figure 11. Cushing and Gulf Coast crude oil storage. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Although the correlation between Gulf Coast and Cushing storage utilization, and WTI oil price is not perfect, it is as good as any single price indicator (Figure 12).

Cushing & Gulf Coast Inventory & WTI Price 6 Feb 2016
Figure 12. Cushing and Gulf Coast Storage Capacity and WTI oil price. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Despite considerable hype about 3 billion barrels of oil in storage around the world, Matt Mushalik has shown that OECD storage is only about 300 million barrels above the 5-year average based on IEA data. More than half of those 300 million barrels are in U.S. storage so, again, the U.S. drives the world oil market.

As long as storage volumes remain above 80% of capacity, oil prices will be depressed. Until U.S. oil production declines substantially, storage will remain near capacity. No OPEC production cut will be able to offset this powerful market factor for long.

Saudi Arabia Is Not Going Broke

Euan Mearns has presented a compelling case that OPEC made a gigantic blunder by letting oil prices fall below $40 per barrel for the sake of market share. I believe, however, that there is more at stake than market share.

The capital providers who enable high-cost oil projects are the market-share target of Saudi Arabia’s gambit. Oil sands are the primary focus because these have gigantic reserves. Deep-water and tight oil are secondary objectives because their reserves are smaller and shorter lived.

OPEC’s larger objective is to postpone the end of the Oil Age as far into the future as possible. This is accomplished by an extended period of low oil prices that puts renewable energy at a price disadvantage to oil and gas, and slows the climate change-based flight from fossil energy. It is further achieved by stimulating the global economy through low energy prices that may in turn increase oil demand.

The commercial present and future for the Saudis and their Gulf State comrades depend on oil. They take the long view that near-term losses are justified by longer-term gains.

I am not defending their stratagem but merely trying to understand it.

The press has been focused on the imminent financial demise of Saudi Arabia as a result of their production and price strategy. Although the strain on the Kingdom is considerable, I do not believe that these criticisms are completely realistic.

Saudi Arabia’s year-end 2015 foreign reserve accounts totaled $636 billion, an amount almost equal to its cash reserves in 2012 when Brent prices averaged $112 per barrel (Figure 13).

Saudi International Reserves 28 Jan 2016
Figure 13.  Saudi Arabia international reserve assets. Source: Saudi Arabia Monetary Agency and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Its estimated cash reserves through 2017 of $443 billion are still above or nearly equal to levels from 2007 through 2010 and exceed the current accounts of all countries except Switzerland shown in Figure 14 (China ($3513 bn) and Japan ($1233 bn), not shown in the figure, are higher than Saudi Arabia).

International Reserves Comparison 28 Jan 2016
Figure 14. International reserves and foreign currency liquidity. Source: International Monetary Fund and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The Way Forward 

Oil prices will not increase or stop falling until the current 2 mmbpd over-supply  is consistently reduced for a period of many months. I do not expect a formal OPEC production cut until that happens. That means that U.S. production and storage inventories must fall. That may happen in 2016 if EIA’s forecast shown in Figure 8 is close to correct.

There are some considerable wild cards that might keep the world mired in over-supply and low oil prices beyond 2016. Renewed supply from Iran and Libya are the most obvious candidates. Continued supply of external capital to U.S. tight oil production is a second important wild card. The weak global economy and associated oil demand below the forecasted range of 1.2 mmbpd of annual growth represent other important uncertainties.

Without a meaningful forward reduction of U.S. oil production of around 1 mmbpd, an OPEC cut would only have a limited, short-term effect on prices. The focus going forward must be on the source of the problem. That is the United States and not OPEC.

Comment on this article

Required fields marked with *

21 comments on this entry

  1. Thanks for another outstanding post, Art. I always love your charts and graphs.

    One question: You have in the past expressed the opinion that the oversupply was starting to shrink, citing other data sources. How do you feel about IEA’s 2.24mmbpd figure and the general statement that oversupply has increased rather than decreased? Do you see this as a case where IEA’s data is likely “right” and therefore you are forced to change your earlier view that the oversupply was shrinking, or do you see this as a case of IEA’s data being of dubious veracity?

    On a very simplistic level, I have a hard time believing the figure, just based on my mental experience of following the weekly inventory reports. Yes, we saw a real duzy last week, but this week was technically a draw, and we haven’t seen anything like the string of crazy-huge builds we had back in the spring of ’15. So if the oversupply has really increased from 1.62 to 2.24mmbpd, I’m struggling to figure out where the extra 0.62mmbpd is going.


  2. Erik and Todd,

    Thank you both for your insightful comments about the possible disconnect between EIA data and your observations about crude oil inventories, refinery inputs, etc.

    EIA does the best it can but the supply and consumption information they publish in the STEO, DPR, etc. are all estimates. The last real data that is vaguely believable about production is from October and that is incomplete, partly wrong and will definitely change as will the data from almost every month at least 6 months back from there. The consumption side is somewhat more timely and accurate because it is based on storage and related factors that are more readily available and more precise although with clear limitations.

    Then, there is the market that somehow seems to know the right price-inventory relationship to make a short bet on price–what the market “desires” using the language of my friend Mike Bodell. A lot of this is based on comparative storage from a year ago or the last several years. If you look at the comparative inventory-price trend for WTI, you will find that its slope more-or-less matches the slope of another or several previous time series. That is the trend you want to understand for price formation forecasting and it is largely indifferent to excursions of a week or even many weeks of data from that trend.

    I have not changed my view that the global market balance is getting better…very slowly. The general trend-line in my Figure 2 is down toward balance from April 2015. There are monthly deviations from that trend–like the present month–but, for now, the trend is down.

    I mentioned the wild cards that could change this–Iran, Libya, ongoing capital supply to U.S. tight oil E&P, the global economic weakness, etc.–but, with the available data today, that is what I see. Another few months like this month, and I will have to re-evaluate.

    Which brings me back to whether the EIA data is credible. That will work itself out every month going forward. I have to use the data that is available even if I have doubts. The IEA and EIA data that just came out were in good agreement about the net change in over-supply although the supply and demand/consumption components differed, as does the time scale–EIA is about January 2016 and IEA is about 4th quarter 2015.

    With natural gas prices a few years ago, we saw that the market lowered its “desired” price even though most people knew this was less than the cost of production. If a price trend has enough stability, the market adjusts its expectation. That will happen with oil if prices remain in the lower registers long enough. The underlying pessimism that I wrote about a few weeks ago regarding the price slump from October through mid-January was with that in mind.

    I hope that this helps.

    All the best,


  3. Art, I too share Erik’s sentiment. I’ve pulled the weekly petroleum reports from the EIA and plotted the weekly changes back to January 2013 when prices were relatively stable. I made some interesting observations I’d like to share.

    First I plotted the weekly refinery inputs, imports, and storage changes. From that, I’m able to calculate domestic production using (Inputs x 7 days) – (Imports x 7 days) – (weekly change in storage) = Domestic Production (divide by 7 to get daily). When I plot those numbers against the EIA reported production, I see an incredible average of their numbers through the weekly gyrations of the raw numbers I calculated — up until the week of 8/27/2014. From there, the EIA reported numbers skim the top peaks of my calculations and from May to July of last year, they exceed my calculated numbers by an average of 600 MBOPD. From July, they approach my calculated numbers until December when I start get much lower calculated production and wild gyrations between low 8 to low 9 MMBOPD. What I find interesting is that during these lower production weeks, imports shot up and the two lines start to come together (of note, the last time those two lines met was in early 2014 when calculated production was near 8.4 and imports were near 7.8 MMBOPD).

    Furthermore, by taking the calculated production and adding imports minus stock change, you can plot oil consumption. When plotted, we can see that consumption has generally stayed between 10 and 20 MMBOPD with an occasional peak above and below those thresholds.

    Since the period which Erik refers to (Jan – March 2015), the weekly changes seem to have become more in-line with the cyclical changes of previous years as my calculated production stabilized near 9.1 MMBOPD.

    Even more telling is the EIA report this week that showed a draw during the month of February – something that hasn’t happened in the last 3 years. Calculated production was around 8.2 MMBOPD but imports fell by 1.2 MMBOPD.

    Lastly, by taking the calculated production from November through January, we go from 9.146 to 8.693 MMBOPD which translates to a 19.8% decline for the year. Astonishingly enough, when you look at Texas production, that 20% decline shows up from March through October production. Additionally, if you take all of the Eagle Ford production/well you’ll find the exact same 20% decline rate that has been ongoing since 2012.

    In summary, I think the data I am looking at is matching up extremely well. I question the EIA’s decline rates and the report that came out this week. My hunch is that they estimate production using algorithms based on historical data when production came from conventional wells. There is no historical data measuring the decline in production when it comes from tight plays which is why I think the EIA estimated production is much higher than reality and US production is declining much faster than anyone thinks. I think our industry is trying to steer a ship by looking over the stern (i.e. looking at EIA production reports that are months old). I see our domestic oil supply dwindling quickly; I see a return to cyclical builds and draws suggesting storage topping out at 550 MMBO before seeing dramatic withdraws during the spring and summer. By the end of the year I see US production cratering to 7.7 MMBOPD and a return to storage that is within normal limits. I think the domestic glut in storage came from the period of January to March when demand was unusually low (still high gas prices and maybe climate conditions). Since then we are beginning to become more in balance and I think prices will rebound violently as this data becomes more apparent.

    Curious about your thoughts.

  4. Amazing that some companies are still able to raise equity. While Pioneer and Diamondback as leveraged as most, they are just doing what the other highly levered oil & gas companies have been doing for years…and people still give them money! Even more puzzling are the creditors who are going to be equity holders of Magnum Hunter Resources. The CEO drives the company into bankruptcy and it looks like they are going to keep him as CEO and his plan of continuing production growth!

  5. Philip,

    Amazing yet it also seems to be the norm. When creditors have so much to lose, they default to hope.

    Thanks for your comments,


  6. Calling CO2 a pollutant is a farce. Hundreds of billions are being made from green energy scams, and this drives the ‘global warming’ nonsense.

    The tragedy of fossil fuels is the millions of years it took to create them. The best investment out there is buying and storing oil. Store 5 billions barrels in salt caverns at $25 a barrel and sell it 5,10 or even 50 years from now at $150- $400 barrel. Timing is a fools game, but Chris Mortensen has predicted $400 oil down the road

    Pie in the sky replacements for fossil fuels remain pie if the sky. For example, for every rated gig of solar how much electriciy is actually generated. 15-20% of the rated installed based?

    The USA spends $400 Bil a year on assorted Big Pharma concoctions. Cut that bill by 2/3 and buy all the world’s excess oil for storage in salt caverns.

  7. The result of low oil prices is of course declining investments. I have done some graphs using data from the IEA.

    IEA in Davos warns of higher oil prices in a few years’ time

  8. Matt,

    I read the post and higher oil prices are inevitable with the deferrals and cancellations of the past year or so. Fatih Birol made some comments recently that we have never seen two consecutive years of investment drops like we are now seeing.

    I always appreciate your comments,


  9. Art,

    Thanks so much for an extremely thorough reply to me and Todd. It was very helpful.

    It occurs to me that it might be useful to turn this question upside down, in something of a thought experiment.

    Let us just assume (for this thread only) that IEA are gods who are never wrong, and 2.24mm bbl/day is in fact the current extent of oversupply, and furthermore, that the trend is toward growth in oversupply, not shrinkage. Just for sake of discussion.

    Ok, so now we know that more than 2mm bbl/day is finding its way into storage *somewhere in the world*. If it’s being produced and not consumed, after all, the only explanation of where it’s going is that someone must be putting it into storage.

    We know that the EIA figures don’t show U.S. “officially inventoried” storage inventory growing anywhere close to that fast. So this oil – and we’re talking about a LOT of oil – is mysteriously being stored somewhere other than tank farms tracked by EIA. And that makes perfect sense. We know some traders have already put on the “tanker trade” (chartering VLCC’s as floating storage), and we know that storage tanks outside the USA are not inventoried as precisely with government data as we have in USA, so some of the oil is going into private tanks in East Overshoe, Slovenia or who knows where else.

    Maybe someone who’s better than myself at data analysis can weigh in here. Personally (and I admit to being more of a conceptual thinker than a data junkie like Art), the way it strikes me is *Two million barrels PER DAY is just DISAPPEARING into un-accounted for storage? No freakin way – I don’t believe it!”.*

    But of course I’d much rather see someone actually look at VLCC cargoes, non-U.S. tank inventory data (I know there are private services that track some of it), and try to do a more objective analysis on where that 2.24mm bbl/day could be going. I’d be shocked if the conclusion of such an analysis were anything other than “2.24 mm can’t be the right number”, but I’d absolutely LOVE to see some concrete analysis in place of my own off-the-cuff rant on the subject!


    p.s. Time to fire up Google Earth! Enquiring minds want to know what’s *really* being stored in that swimming pool in Art Berman’s back yard! 😉

  10. Erik,

    Your logic is…logical but I don’t think this equation can be solved because there are too many unknowns. There are good reasons why no one tries to evaluate inventories outside of the OECD. Production is equally problematic. If we have so much trouble getting U.S. production right, imagine the impossibility of accounting for the world. Reserves is an even bigger problem.

    The task for the IEA and EIA is daunting. Both agencies endure endless disrespect and abuse. I know EIA much better than IEA and I believe they honestly try to do the best job they can. Perhaps I am naive and I know there are agendas in all organizations particularly when they report to the Cabinet and President. I think that Moniz is one of the most sensible and well-informed Secretaries of Energy in a long time. Adam Sieminski, the EIA Administrator, is a smart and decent guy with lots of analysis experience in the private sector. My choice is to leave this problem to those guys and trust that time will give us the truth. That may not satisfy you because you are hoping to guide your investors in the relatively near term.

    I don’t have a pool!

    All the best,


  11. Art, thanks for the reply to Erik and myself. I find your articles and follow-up comments informative and helpful.

    One more question to ponder; do you think it would at all be likely that OPEC would agree to hold an emergency meeting to cut supply a few months before an actual meeting in the summer and late fall in order to see how the market reacts?

    It would seem to me they would want to cut and then analyze market conditions for a few months before their normal meeting at which time they would decide whether to keep cuts, boost production, or cut further.

    Thanks again for your input.

  12. Todd,

    We think about OPEC as a block but they are not.

    Saudi Arabia, Kuwait and the UAE are a block and produce about half of OPEC’s oil (15.1 mmbopd). They are also the rich members.

    Iran and Iraq presently produce 25% of OPEC’s oil (7.3 mmbopd) with another 1 million potentially for Iran and Iraq’s production growing the fastest of any OPEC country. They are not rich and are also Shi’a whereas Saudi, Kuwait and UAE are all Sunni.

    The rest of OPEC produce the last 25% and, except for Qatar, are also poor. To say that OPEC members outside of Saudi Arabia and the Gulf States are poor understates their true situation–they are desperate.

    I imagine that behind the closed doors of OPEC meetings, there is disfunction. Their issues are similar to the Climate Conference with the rich vs. poor trying to decide who should bear the cost of carbon reductions.

    Probably, the decisions to do nothing have more to do with the impossibility of agreement than on any clear strategy or plan.

    I, therefore, doubt that we should expect anything different from OPEC because they have nothing to give.

    All the best,


  13. Art:
    Thank you for all your detailed and insightful articles, I came a cross this statement from EOG CEO this wednesay, would like to share it with you/others and read your take kn it if possible, and as follows:

    ”Nobody thinks that the existing costs are anywhere near sustainable,Even the Saudis are worried today. oil will have to recuperate to levels around $70 or $80 a barrel eventually.”


  14. Ameen,

    Bill Thomas is generally a clear thinker and straight speaker although his hyperbole recently about the Permian basin made me wonder.

    In any case, his comments on oil prices needing to be at $70-80 is quite reasonable. You may recall that my last post of 2015 “The Crude Oil Export Ban–What, Me Worry About Peak Oil?” included a summary table of break-even oil prices for the three main U.S. tight oil plays in the range is $60-70. That’s break-even so, to make a little money, add $10 and you have Thomas’ numbers.

    All the best,


  15. Hallo Art,
    I am interested to hear what do you think about this article from Katusa. Do you think investors/bankers will continue lend more to E&Ps? Thank you for all your great articles!
    Kennet (Stockholm)

  16. Interesting analysis, Art. I haven’t thought of it that way. My gut said we won’t see any cooperation among OPEC members but I couldn’t articulate why. Your analysis makes perfect sense.

    Thanks again for the time you take to research and put together these posts and for the time to respond to comments. I find bouncing ideas off of each other helps us all think about things in ways we wouldn’t normally.

    Looking forward to the next one!

  17. Art,

    It is also my opinion that capacity in the US increased too fast and at any price. On the surface, the increase of US production has been very impressive, yet it put Saudi Arabia to the wall and it has been almost certain that Saudi Arabia had to respond. A reduction of US production would be also a long term benefit for the shale industry as this gives the market time to absorb new capacity and will increase the oil price long term and make it more stable.The longer the shale industry delays the cut, the bigger the damage – also to the US economy.

    There is also danger of overshooting to the downside of production as the publication of a shale production decline will lead to a half year further decline until production can catch up again (providing prices have increased in the meantime). In any case the oil market and prices will recover rather sharply, when it happens.

  18. Art –

    “U.S. crude oil production has only declined by approximately 570,000 bpd from its peak of 9.69 mmbpd in April 2014”.

    Typo as per Figure 8, peak of 9.69 mmbpd in April 2014. Should be April 2015. Thanks for your work, and clear figures.

  19. […] The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd. […]

  20. […] The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd. […]

  21. […] The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd. […]