Oil Production Vital Statistics January 2018

by: Euan Mearns

The oil price has begun 2018 strongly with Brent breaking through $70 / bbl for the first time since December 2014. OPEC+Russia+others' discipline on production constraint remains high with ~ 1.7 Mbd production withheld from the market. The IEA reports an ~1 Mbpd stock draw in the OECD + China in 4Q 2017. IEA revisions transform the picture in the USA from one of static production to one of strong growth over the last 3 months (this undoes one of the assumptions used in my 2018 oil price forecast).

The inset image (live chart below the fold) shows a slow-motion train wreck in Venezuela where production has fallen 810,000 bpd since December 2014.

The dramatic slide in oil production in Venezuela began ~ December 2014. We have to presume that the collapse in the oil price has something to do with this. There is however no sign that rising price, now offset by falling production, is averting that country's collapse. The oil price was held back in 2017 by rising production in Nigeria and Libya. Production in Libya is now holding steady at ~ 1 Mbpd and production in Nigeria is holding steady at ~ 1.65 Mbpd. According to the IEA, OPEC compliance with the agreed cuts is now running at 129% in part due to the unscheduled collapse in Venezuelan supply.

I have been following bio-fuel production, pointing out that it had been on a cyclical high last autumn and was scheduled to fall by ~ 1 Mbpd over the winter. This fall is duly underway (below). This, combined with the collapse of Venezuela and continued OPEC++ discipline has underpinned the strong oil price rally.

The following totals compare December 2016 with December 2017:

  • World Total Liquids 97.87/97.59 -280,000 bpd
  • OPEC 12: 32.87/31.89 -980,000 bpd
  • Russia + FSU 14.53/14.44 -90,000 bpd
  • Europe OECD 3.66/3.24 -420,000 bpd
  • Asia 7.57/7.20 -370,000
  • North America 19.48/21.04 +1,560,000 bpd

In summary, we see production constraint in OPEC+Russia, production decline in Asia and Europe offset by production growth in N America.

Note that Vital Statistics is produced using the Global Energy Graphed database employing Google Sheets. Since these graphs are live, they will update automatically in future as more data are added, meaning that the narrative of this post will no longer match the data in the months ahead. The database was compiled by Neil Mearns who also updated all the charts this month.

Oil Price

Oil price data updated to January 29, 2018, using data from the EIA.

Figure 1 Daily oil prices from the EIA updated to January 29. On around June 28th the WTI-Brent spread began to open but is now showing signs of closing again (Figure 3). A correction is now overdue and I suspect we see $65 before a significant move above $70. The only bearish signal is US+Canada production growth.

Figure 2 Longer term view of daily oil price. Note how the Brent-WTI spread was a feature of the high oil price era.

Figure 3 WTI minus Brent. At its peak, the spread reached $30 per barrel. During the price collapse the spread disappeared completely but then re-opened. There are possible signs of it beginning to close once more.

Rig Counts

Rig count charts for North America, the USA, South America, The North Sea and OPEC are shown below. Additional charts for Europe, The Middle East, Africa and Asia-Oceania can be found here.

Rig counts provided by Baker Hughes (NYSE:BHGE) are updated to 2nd February for N America and to December 2017 for all the rest.

Figure 4 Stacked area chart showing North America total rig count. Peak drilling was reached on January 27, 2012, with a total of 2789 active rigs. The post oil price crash low was reached on May 27, 2016, when only 469 rigs remained active. Last time round I said "The recovery in US drilling that began last summer has now stalled suggesting that profit from LTO lies somewhere above $55 WTI." With significant growth in US production over the last three months, it seems that improved drilling efficiency and targeting the best plays may permit production growth with <1000 rigs. Any growth in US rig count may result in a flood of US oil as forecast by Rystad Energy. It is evident that cyclical growth in Canadian drilling activity is underway. Mexico continues to slumber.

Figure 5 Stacked area chart of US Total rig count showing the oil - gas split. The total US rig count stood at 946 on 2nd February down 12 from the near-term high of 958 recorded on July 28, 2017.

Figure 6 Same data as above but plotted as an unstacked line chart. The return of drillers to the LTO patch in the USA has now stalled.

Figure 7 US rig count broken out by sedimentary basin / petroleum systems play. The recent revival in US drilling has been led by the Permian which is a prolific and low cost LTO play where Exxon Mobil (NYSE:XOM) has announced large future investment on property acquired from Bas Energy.

Figure 8 Drilling has slumped in the North Sea to a record low since 1995. 28 rigs were active in December compared with a pre-crash high of 58 rigs in April 2014. There is no sign of the North Sea coming back to life, however, BP recently announced two new discoveries.

Figure 9 Drilling within OPEC remains close to a cyclical high but is also falling slowly as production cuts reduce the need for new wells. Note that the data series for Iraq and Iran are incomplete and affected by war and sanctions and are not shown.

Figure 10 The near-term top in S American rigs was 329 in August 2014. By June 2016 this had crashed to 158 and it remained at about that level for the remainder of the year. Drilling in S America, including OPEC members Venezuela and Ecuador, remains in the doldrums with 180 rigs operational in December 2017. Note how drilling in Brazil and Colombia collapsed completely but Colombia is now coming back to life. A decline in drilling in Venezuela is holding the S American total back where otherwise there are tentative signs of activity returning.

Oil Production

Monthly oil production data are compiled from the IEA OMR. The public data are normally released towards the end of the month and relate to the previous month, meaning that we are always running 4 to 5 weeks behind real time. The oil production graphs are updated to December 2017.

The 15 graphs below are mainly composite production groups. Graphs for individual countries reproducing the whole of the IEA OMR oil production data can be found GlobalEnergyGraphed as follows:

OPEC 16 charts
OECD 10 charts
Rest of World (including Russia) 21 charts

Figure 11 The OECD has only 4 significant oil producers: the USA, Canada, Mexico and Norway. The UK has now become a small player with production ~ 1 Mbpd alongside small producers Denmark and Australia. Since the 2014 oil price crash, OECD production has effectively been stable at just below 24 Mbpd although strong recent growth in N America pushed group production up to 24.7 Mbpd in December 2017.

Figure 12 The shape of the N American stack is dominated by the USA where LTO production began to accelerate early in 2012. The near-term peak for N America was in April 2015 at 20.12 Mbpd. In December 2017, total production was 21.04 Mbpd, up 850,000 bpd Since September 2017.

IEA revisions have totally transformed the picture since my last report which showed US production to be flat as of November 2017. This may impact my oil price scenarios for 2018.

The notch down in Canada in May 2016 was down to the Fort McMurray wildfire. Mexican production continues its long term decline (below).

Offshore Mexican production that is dependent upon nitrogen injection appears to be on the skids.

Figure 13 European oil production is dominated by the North Sea and in particular by Norway. The "other" category is dominated by Denmark with a contribution from Italy. The high on this chart is 7.1 Mbpd in April 2002, the low is 2.94 Mbpd in September 2013. The recovery in N Sea production that began in 2014 (the year of the crash) now seems to be faltering. December 2017 production stood at 3.24 M bpd. UK production is stable, but Norway appears to be experiencing some steep decline. I wonder if Norway is holding back some production showing solidarity with OPEC++?

Figure 14 Stacked chart for monthly oil production of 12 OPEC countries. Gabon, which rejoined OPEC in July 2016 and Equatorial Guinea which joined joined in 2017, are not shown. The grey band at top shows spare capacity. The IEA has not reported spare capacity since December 2016, focussing instead on quota compliance. The reference month for OPEC quotas was October 2016 when production hit a record high of 32.92 Mbpd. In December 2017 OPEC 12 production stood at 31.89 Mbpd, down 1,030,000 bpd from the October datum. Libya, Nigeria and Iran are party to the production constraint deal.

Figure 15 Details of OPEC spare capacity. At the end of 2016, spare capacity was approaching historic lows of 1.99 Mbpd with most countries pumping flat out. The IEA has not published spare capacity data since December 16.

Figure 16 Iran pumped 3.85 Mbpd in December and has hit a production plateau following the lifting of sanctions.

Figure 17 Libya achieved 1.1 Mbpd in July, 0.92 Mbpd in September and pumped 0.97 Mbpd in December 2017. Stability may have returned to this part of Libya where production has been restored.

Figure 18 Rest of World production has been glued to a plateau of 30 Mbpd since January 2010. However this statistic hides winners and losers. Russia is the most prominent winner and China the most prominent loser.

Figure 19 In October 2016, Russian production stood at 11.6 Mbpd. In December 2017, production stood at 11.33 Mbpd, a fall of 270,000 bpd. Russia remains compliant with the agreed cut of 250,000 bpd in this historic deal. Note that Between August 2016 and October 2016 Russia ramped up production by 550,000 bpd (the OPEC++ datum).

Figure 20 Production in SE Asia remains in slow decline, led by China.

Figure 21 South America, excluding OPEC countries Venezuela and Ecuador, is dominated by Brazil. Production for the group is stable. I do not know the reason for the steep fall in Brazil's production that took place in June 2010.

Figure 22 The Middle East excluding OPEC is dominated by Oman. Other Middle East will be dominated by Bahrain. The group decline reflects wars in Syria and Yemen. Oman is party to the OPEC deal and production there of 970,000 bpd in December 2017 is down 50,000 bpd since the October 2016 datum, which is bang on the agreed constraint.

Figure 23 Africa excluding OPEC (Libya, Algeria, Nigeria and Angola) has only one other major producer in the shape of Egypt. There are a host of smaller producers in the other category that includes countries like Equatorial Guinea, Republic of Congo, Gabon, South Sudan, Chad and Tunisia. The group is in slow decline. Note that Gabon and Equatorial Guinea have recently joined OPEC.

Figure 24 Summary of global C+C+NGL production. Note that OPEC countries' NGL production is reported separately. December 2017 totalled 93.1 Mbpd. The record C+C+NGL production remains 94.18 Mbpd set in November 2016 when OPEC++ were pumping flat out ahead of "The Deal."

Figure 25 Global total liquids showing the constituent parts. Processing gains and biofuels are not shown in Figure 24. Chart not zero scaled. December 2017 production stood at 97.59 Mbpd, down 1.25 Mbpd from the all-time high of 98.84 Mbpd recorded in November 2016.