US drilling slump a tough start to market correction

Two changes essential to reversal of a sagging oil market are coming into view: Supply expectations are falling, while demand looks—well, at least stronger than it did a few months ago.
March 20, 2015
2 min read

Two changes essential to reversal of a sagging oil market are coming into view: Supply expectations are falling, while demand looks—well, at least stronger than it did a few months ago.

Since December, two of three important market trackers have lowered monthly forecasts for average 2015 supply from outside the Organization of Petroleum Exporting Countries.

The International Energy Agency’s March projection for non-OPEC supply is down 400,000 b/d from December at 57.4 million b/d. OPEC’s projection is down 100,000 b/d at 57.2 million b/d.

The US Energy Information Administration’s March projection for 2015 non-OPEC supply, 57.58 million b/d, is up by 740,000 b/d from a December forecast that was the lowest of the three.

All three March forecasts for global demand this year are up from December values: by 200,000 b/d to 93.5 million b/d for IEA, by 810,000 b/d to 93.13 million b/d for EIA, and by 200,000 b/d to 92.5 million b/d for OPEC.

Meanwhile, a zooming source of non-OPEC supply has entered a glide.

In its Mar. 9 Drilling Productivity Report (DPR) covering March and April, EIA forecasts declines in crude production in the Eagle Ford, Niobrara, and Bakken plays—the first negative projections since the report started up in October 2013. With output in other plays still rising, the March projection overall is up slightly, while April is flat.

Because tight-oil production depends heavily on continuous drilling, when rig counts fall, production must follow.

Drilling remains in a dive. The Baker Hughes count of rotary rigs active in the US during the week of Mar. 20 was 1,069, down 56 from the previous week, 734 from the comparable week a year earlier, and 862 from the last year’s high in September.

In all three plays where production has begun to change direction, drilling is down from last year. It’s down in most other tight-oil plays, too. Production has lost lift.

This is how the market sheds surplus when OPEC won’t. This is how correction feels.

(From the subscription area of www.ogj.com, posted Mar. 20, 2015; author’s e-mail: [email protected])

About the Author

Bob Tippee

Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.

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