It's down because Saudi Arabia output has increased to cover their debt service along with some fields coming online in Africa ....
Daily domestic production added a record 944,000 barrels last year and reached a 29-year high of 8.95 million barrels this month, according to the Energy Information Administration, the U.S. Department of Energy’s statistical arm.
Photographer: Daniel Acker/Bloomberg
Unleaded gasoline is delivered to a Shell gas station in Peoria, Illinois, U.S.
Well Depletion
Output, much less growth, is difficult to maintain because shale wells deplete faster than conventional production. Oil production from shale drilling, which bores horizontally through hard rock, declines more than 80 percent in four years, more than three times faster than conventional, vertical wells, according to the IEA. New wells have to generate about 1.8 million barrels a day each year to keep production steady, Dwivedi said.
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At $80 a barrel, output would grow by 5 percent, down from a previous forecast of 12 percent, according to New York-based ITG.
At $75 a barrel, growth would fall 56 percent to about 500,000 barrels a day, Dwivedi said. Closer to $70 a barrel, the growth rate would drop to zero, he said.
Decline Rates
In North Dakota’s Bakken shale, oil at $70 a barrel could cut production 28 percent to 800,000 barrels a day by February from the 1.1 million barrels a day that was pumped in July, according to Philip Verleger, who was an economic adviser to President Gerald Ford and the director of the Office of Energy Policy for President Jimmy Carter.
Photographer: Eddie Seal/Bloomberg
Horizontal drilling through shale accounts for as much as 55 percent of U.S. production... Read More
“The cash flow will go down as the prices go down, the amount of money advanced to these people to continue the drilling will dry up entirely, so you’ll see a marked slowdown in drilling,” said Verleger, who runs PKVerleger in Carbondale, Colorado, referring to the industry as a whole.
West Texas Intermediate crude, the U.S. benchmark price, has fallen 22 percent since June 20.
The price will rise to a level where more output is economic, the Sanford C. Bernstein analysts said. The flood of oil from shale is powerful enough to put a ceiling of $90 a barrel on prices through the latter half of this decade, and at times the price will dip to as low as $70, Eric Lee, an oil market strategist at New York-based Citigroup Inc., said yesterday in a phone interview.
More Bearish
There’s a risk the price will “briefly” fall to $75 a barrel before global demand recovers in 2015, Bank of America Corp. analysts said last week. They predicted an average price of $85 a barrel in the fourth quarter.
Investors are more bearish. They’re holding the highest number of short positions on WTI in 22 months, U.S. Commodity Futures Trading Commission data show.
The impact of the bear market on supply could be muted depending on how many companies locked in higher prices with derivatives contracts, Verleger said.
Shale drillers managed to keep expanding production of natural gas even after prices collapsed, said Amy Myers Jaffe, executive director of energy and sustainability at the University of California-Davis. U.S. output rose 3.8 percent to 2.6 trillion cubic feet a month in the year to July, EIA data show, even as the rig count fell in April to a 21-year low, according to data from Baker Hughes Inc., a Houston-based oilfield-services company.
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