The big news in May's production figures is Canada down 620,000 bpd in the wake of the Fort McMurray wild fire, Nigeria down 250,000 bpd in the wake of civil unrest on the Niger Delta, and Libya down 80,000 bpd as that country disintegrates in the wake of Western intervention in its civil war.
Global total liquids production was down 760,000 bpd in May, and while the oil price was perky, getting above $50 in early June, it has not really responded to any of those events.
To make matters worse for producers, the drillers are showing signs of going back to work. The main decline in Canada is reversible and will likely spell oil price weakness in the months ahead as production is brought back on. Brexit spells uncertainty with the most immediate consequence being the strengthening of the US$ pushing commodities prices lower.
The following totals compare May 2016 with April 2016:
- World Total Liquids down 760,000 bpd
- USA down a significant 110,000 bpd
- North America down 730,000 bpd (includes USA)
- Canada down 620,000 bpd
- OPEC down 120,000 bpd
- Saudi Arabia up 40,000 bpd
- Iran up 80,000 bpd
- Nigeria down 250,000 bpd
- Libya down 80,000 bpd
- Russia + FSU up 80,000 bpd
- Europe down 100,000 bpd (YOY)
- Asia down 30,000 bpd
And on the drilling front:
- US oil rig count up 25 from the low of 27 May
- International rigs up five since last month
These are signs that $50 is sufficient to encourage producers back to the drilling market that may produce a negative feedback loop for months/years to come.
This article first appeared on Energy Matters.
Figure 1 The near term peak in the oil price (WTI and Brent) was on the 8th of June at $51 and therefore pre-dates Brexit. The market reaction to Brexit was quite muted with the pound falling sharply while the FOOTSIE made significant gains. The oil price may have fallen marginally on the back of a strengthening $. At the moment it is impossible to predict from this chart where the oil price is heading next. As I write (5th July) Brent is trading at $49. It is difficult to find fundamental reasons for the oil price to head higher at this time.
Figure 2 At this scale, the oil price is in no man's land. It never reached the lows of the last rout in 1998. but broke through the rising bottoms trend where it is currently resting. On the Bear side, Brexit has created huge uncertainty in the global political and financial system, loss of significant production in Canada had little, if any, positive impact on price and return of that production may weigh in and perky prices are sending drillers back to work. On the Bull side, there is not yet much to mention.
Figure 3 Not updated since March.
Figure 4 The US oil and gas rig counts have both risen slightly. Oil is up 25 rigs to 341 from the low of 316 seen on 27th May. Gas is up seven rigs to 89 from the low of 82 seen on 3rd June. Herein lies the conundrum for the oil market. Rising price will send US drillers back to work creating a barrier to higher prices for the foreseeable future. Many observers would have anticipated that over $60 would be required to make LTO profitable. It would be interesting to know where the new rigs are heading. Perhaps Arthur Berman can answer that.
Figure 5 Stacking the lines from Figure 4 shows the tiny reversal in total US rig count. Good news for drilling crews and consumers but potentially bad news for the remainder of the global oil industry. I would not bet on this being the bottom in US drilling.
Figure 6 The near-term peak in US production was 13.24 Mbpd in April 2015. The May 2016 figure was 12.53 Mbpd, down 710,000 bpd from that peak and down a significant 110,000 bpd from last month that once again, in part, reflects data revisions to last month's figure. The decline in US production is slow and may be reversed if drilling picks up significantly in the coming months.
Figure 7 OPEC production has been rock steady for 12 months (dashed line) and currently stands at 31.87 Mbpd, down 120,000 bpd on last month. Notable movers this month were Iran up 80,000 bpd to 3.64 Mbpd. This now exceeds the IEA's prior estimates of their production capacity. Libya down 80,000 bpd to 270,000 bpd which sounds like more trouble brewing in that country. Nigeria down 250,000 bpd to 1.37 Mbpd on the back of insurgents sabotaging production on the Niger Delta.
Figure 8 The public version of the IEA full report upon which this chart is based has not been published. So the chart is not updated since April.
Figure 9 In May, Saudi production stood at 10.25 Mbpd, up 40,000 bpd from April. NZ = neutral zone, which is neutral territory that lies between Saudi Arabia and Kuwait where production from the Wafra heavy oil field, is now effectively zero. Saudi Arabia is effectively pumping at capacity. The fabled 2 million bbls per day spare capacity is either a figment of imagination or heavy oil that has no refining market.
Figure 10 Iran produced 3.64 Mbpd in May, up 80,000 bpd on the previous month and is now pumping at a level higher than prior capacity estimates made by the IEA. Iran has now returned to the production levels seen before sanctions were imposed.
Figure 11 ME OPEC rigs were up six to 149 in May and drilling in the ME remains on a cyclical high. Iran and Iraq are not shown since activity in these countries is disrupted by war and sanctions.
Figure 12 The international oil rig count is up five to 704 (not evident from this chart, blame XL). Europe and Africa are steady, the Middle East and Asia are up. Asia up sharply by 12 rigs to 138. But Latin America continues to decline. Venezuela down 10 and Brazil down four are the main culprits.
Figure 13 Russia and other FSU produced 14.08 Mbpd in April, up 80,000 bpd. There is no sign of Russian production buckling under price pressure, and if anything, it continues to rise slowly.
Figure 14 The cycles in European production data are down to summer maintenance programs in the offshore North Sea province. We are now coming to the cycle low as summer maintenance gets way. Several years of $100 oil and record investment has arrested the decline of the North Sea.
To get an idea of the trend, it is necessary to compare production with the same month a year ago. European production is down 100,000 bpd to 3.43 Mbpd compared with a year ago.
Norway May 2015 = 1.90 Mbpd; May 2016 = 1.96 Mbpd; up 60,000 bpd YOY
UK May 2015 = 1.08 Mbpd; May 2016 = 1.01 Mbpd; down 70,000 bpd YOY
Other May 2015 = 0.55 Mbpd; May 2016 = 0.46 Mbpd; down 90,000 bpd YOY
Figure 15 This group of S and E Asian producers has been trending sideways since 2010, but it has been trending down now for over a year. The group produced 7.54 Mbpd in May, down 30,000 bpd. Note that Indonesia (an oil importer) has rejoined OPEC. The OPEC production numbers are reported ex NGL by the IEA and this has meant a 170,000 bpd drop in reported Indonesian production.
Figure 16 N America is where much of the action is this month. The Fort McMurray fire that broke out on 1 May has knocked 620,000 bpd off Canadian tar sands production. N American production topped in April 2015 at 20.12 Mbpd. Group production now stands at 18.54 Mbpd, down 730,000 bpd on last month and down 1.58 Mbpd from the April 2015 peak.
Figure 17 Total liquids = crude oil + condensate + natural gas liquids + refinery gains + biofuel. May production was 95.36 Mbpd, down 760,000 bpd on the month before and down 1.72 Mbpd from the July 2015 peak. Production falls in Canada (620,000 bpd), Nigeria (250,000 bpd) and Libya (80,000 bpd) have done most of the damage. And yet production remains above the long-term trend line and the oil price barely flinched and has been heading down since early June. The weight of over-supply is taking a very long time to dissipate.