Stocks
The slow down in the growth of US crude inventories has continued this week, with stocks starting to flatten out. At some point the sharp cut in rig count was going to have an effect, and this is now actually starting to be felt.
Source: EIA |
Source: EIA |
Crude stocks levels are not paralleled by inventories of gasoline, distillate or other products. Gasoline and distillate are very close to 5-year average ranges for this time of year.
Rig productivity and outlook for oil production
While the rig count has fallen, rig productivity has increased markedly. Notably, the Permian region has seen a spike in the rates in April and May, with rates increasing from 200bopd in January to 265bopd in May. We will watch the next few data points in coming months to see how this develops. The Permian currently accounts for 2.0mmbd or about 36% of US onshore production so this is not an immaterial data point.
Source: DPR |
Source: DPR |
Effect on US production
Our current model assumes a fade of rig productivity over time (applying the most recent rig counts). The three scenarios laid out below assume that the growth rate in production per rig fade to 0% by the dates given (from current growth rates). We can see how different fades will affect headline production.
The results imply that US crude production is likely to at least flatline unless rig count continues to decline or rig productivity growth rates lessen quickly.