Oil markets didn’t like the surprise news this week that US crude oil production is again rising. Detailed government data this week showed output rose in August for the first time since March.
The news came in official data from the US Government’s Agency Information Agency (EIA) and have dealt another blow to hopes that the global oil glut is going away.
The EIA’s latest monthly report revealed that the US had produced 8.744 million barrels (b/d) of crude a day in August, 51,000 b/d more than in July.
August’s figure was still 6.8% under the 9.384 million barrels a day produced in August 2015. From its peak in April 2015, US production had fallen about 883,000 b/d by August, but that fall decline has been slower than many forecasts and if sustained, is sure to hit oil market sentiment.
The data came three days ahead of the usual weekly production and stocks report from the EIA which showed a record 14 million barrel jump in the size of the US stockpile – an increase that took markets by surprise and sent oil plunging to six year lows.
Oil prices fell again Thursday in the US and Europe to less than $US45 a barrel for West Texas style crude.
Data from Baker Hughes showed that there has been a sustained rise in the number of active oil rigs in operation in the US. Last week was the first week for three months that the number of rigs had fallen (by just 2). In the number of rigs in use is 441, against a low of 316 in late May – early June.
Analysts have been waiting for this surge in rig use to start producing an upturn in production.
The weekly data from the EIA didn’t pick up the rise – that was done in the more detailed monthly report and analysts now expect to see oil output to start growing, which will be bad news for prices.
Global prices fell on Monday by more than 3% on fears the supposed cap on production to be announced on November 30 at the final OPEC meeting of the year, won’t happen and the glut won’t be brought under control.
In fact OPEC production rose again in October hitting a record 34.02 million barrels a day in October, led by a 400,000 barrel-per-day increase from Libya, Nigeria and Iran, according to a Bloomberg survey.
But offsetting that is the rising pace of economic activity in the US, Europe China and Japan which could mop up this oversupply very quickly.
Big US companies are working on maintaining production and then expanding it.
Apache for example is now going to concentrate on bringing its new massive strike in Southwest Texas into production over the next two years.
It is already producing oil in small quantities from this area. Other companies are working on bring new fields into operation as well.
Chevron, America’s second biggest oil company said on Friday that its production in the Permian basin shale oil region of west Texas (where Apache’s strike is located) jumped 24% in the third quarter of this year.
US crude production rose in August because of higher output from wells in the Gulf of Mexico, where output rose 88,000 b/d, but production from shale and other onshore oilfields has proved to be more resilient than it looked at the start of this year.
The EIA has been steadily boosting its expectations for future US oil production.
In March, it predicted that US crude output would hit a low point of 7.95m b/d in September 2017, and then start to recover. Its latest forecasts put the low point in August 2016, with slow growth thereafter until an acceleration in the last few months of next year.
Now the Financial Times says it looks as though even that projection may have been too pessimistic.
