(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2lOpdAs
* Chart 2: tmsnrt.rs/2mfDDXA
* Chart 3: tmsnrt.rs/2ltZmgn
* Chart 4: tmsnrt.rs/2mfVBth
* Chart 5: tmsnrt.rs/2ijPcd9
By John Kemp
LONDON, Feb 23 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
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
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 (tmsnrt.rs/2mfDDXA).
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 (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 (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.
Recorded increases in output during October and November
were likely the result of extra rigs deployed several months
So the continued rise in the rig count during the fourth
quarter of 2016 and the start of the first quarter of 2017
should ensure that recorded output rises for at least the next
The EIA has forecast that U.S. domestic production will rise
by 430,000 bpd between December 2016 and December 2017.
Output from the Lower 48 states excluding the Gulf of Mexico
is forecast to rise by 360,000 bpd (“Short-Term Energy Outlook”,
EIA, Feb 2017).
Past experience suggests shale output often turns out higher
than forecast which suggests a strong possibility it will
increase by even more than 360,000 bpd over the course of 2017.
The EIA has already revised up domestic production growth
for the period December 2016 to December 2017 from 210,000 bpd
as recently as November, and shale growth up from just 10,000
EIA is now forecasting U.S. domestic output of 9.28 million
bpd in December 2017, up from 8.94 million bpd at the time of
the November forecast (“Short-Term Energy Outlook”, EIA, Nov
Forecast production from the Lower 48 states excluding the
Gulf of Mexico has been revised to 7.06 million bpd, up from
6.48 million bpd in November.
The EIA has revised both the baseline and predicted growth
rates higher in recent months, adding hundreds of thousands of
barrels per day of extra production by the end of the year.
OIL PRICE CEILING?
The rapid expansion of shale production was the main reason
for the slump in oil prices that began in June 2014 by
threatening to increase global stocks and reduce OPEC’s market
The forecast growth in shale production in 2017 is still
much slower than during the boom of 2013/2014 when production
was rising by more than 1 million bpd each year.
OPEC ministers have repeatedly stated they believe oil
demand will grow strongly enough to absorb extra shale
production while protecting the organisation’s own exports.
But the organisation will not want to see the shale revival
turn into a new boom because it would risk a re-run of the price
crisis of 2014.
So oil prices may struggle to rise above $60 per barrel for
any length of time this year because the resulting surge in
shale production and likely reversal of OPEC’s production curbs
would tend to undercut sustained gains.
The implied ceiling on crude oil prices for the remainder of
2017 is entrenched in market expectations.
Most energy market professionals expect Brent oil prices to
average around $55-60 per barrel in 2017, according to the
results of a Reuters survey conducted in January (tmsnrt.rs/2ijPcd9).
Brent prices have been very stable at around $55.50 +/-
$1.50 since the middle of December.
* Shale revival looms over oil prices and spreads, Reuters,
* Shale oil and gas sector surges back to life, Reuters,
* U.S. oil and gas industry has turned the corner, Reuters,
* Oil price forecasts for 2017, 2018 rise as downside risks
fall, Reuters, Jan. 12
(Editing by Susan Thomas)